CODE OF ETHICAL PRINCIPLES AND RULES OF CONDUCT

CODE OF ETHICAL PRINCIPLES

AND RULES OF CONDUCT

Effective October 17, 2003

as Amended November 8, 2011

CGA Alberta Code of Ethical Principles and Rules of Conduct

Amended, November 2011 Page ii

TABLE OF CONTENTS

Preamble page 1

Code of Ethical Principles page 3

Rules of Conduct

Responsibilities to Society page 4

Trust and Duties page 7

Due Care and Professional Judgement page 11

Deceptive Information page 13

Professional Practice page 14

Responsibilities to the Profession page 21

Definitions page 24

List of Amendments page 26

Attachment A – CGA Alberta Independence Standard page 30


Amended, November 2011 Page iii

INDEX Page

PREAMBLE 1

CODE OF ETHICAL PRINCIPLES 3

RULES OF CONDUCT 4

RESPONSIBILITIES TO SOCIETY

R101 Discredit 4

R102 Unlawful Activity 4

R103 Discrimination 4

R104 Breach of Rules 4

R104.1 Member Advisor 4

R104.2 Practice Review Committee 5

R104.3 Disclosure Prohibited by Law 5

R105 Criticism of a Professional Colleague 5

R105.1 Notice Waived 5

R106 Reporting of Acts Detrimental to the Profession 5

R107 Compatible Activities 5

R107.1 Professional Practice other than Public Accounting 5

R107.2 Constraints on a Professional Practice other than Public Accounting 6

R107.3 Referral for a Commission 6

R107.4 Use of Normal Business Methods 6

R108 Conduct Unbecoming 6

TRUST AND DUTIES

R201 Confidentiality 7

R201.1 Mandatory Disclosure 7

R201.2 Discretionary Disclosure 7

R201.3 Confidentiality by a Person Contracted by a Member 7

R202 Independence 8

R202.1 Independence in Assurance or

Specified Auditing Procedures Engagements 8

R202.2 Independence in Insolvency Engagements 9

R202.3 Independence in Other Professional Services 9

R202.4 Compilations 9


Amended, November 2011 Page iv

R203 Information Used for Personal Advantage 9

R204 Custody of Client Assets 10

R204.1 Money or Other Assets Held in Trust 10

DUE CARE AND PROFESSIONAL JUDGEMENT

R301 Competence 11

R302 Professional Development 11

R303 Adherence to Acknowledged Principles and Standards 11

R304 Terms of Engagement 12

R305 Sufficient Information 12

R306 Tax Services 12

R306.1 Tax Advice may Favour Clients 12

R306.2 Tax Advice has Limitations 12

R306.3 Filing Responsibility is Client’s 12

DECEPTIVE INFORMATION

R401 Communication Issued in Connection with Financial Information 13

R402 Association with Financial Information 13

R402.1 Employer/Employee Conflicts 13

R403 Known Omission 13

R404 Material Discrepancy 13

PROFESSIONAL PRACTICE

R501 Unfair Methods of Bidding 14

R502 Impairment of Incumbent Accountant 14

R503 Services Provided on Referral 14

R504 Replacement 14

R505 Takeover 14

R506 Fees 15

R506.1 Absence of Fees 15

R507 Referral Fees 15


Amended, November 2011 Page v

R508 Contingent Fee 15

R509 Advertising and Other Forms of Solicitation 16

R509.1 Misleading Name of Firm or Style of Practice 16

R509.2 Preferred Areas of Practice 16

R510 Use of Descriptive Style “Certified General Accountant(s)” in the Name of Firm 16

R510.1 Use of Descriptive Style “Certified General Accountant(s)

in the Name of Firm 16

R510.2 Style of Practice 17

R510.3 Application 17

R510.4 Legal Change of Registrant’s Name 17

R511 Responsibility and Control 18

R512 Association of Member with Non-Members in Public Practice 18

R513 Specialization 18

R514 Marketing of Goods and Services 18

R515 Registration 19

R516 Practice Review Requirements 19

R517 Professional Liability Insurance 19

R518 Service by an Employee 19

R519 Relations with Clients or Employers 19

R520 Students Engaged in the Practice of Public Accounting 19

R521 General Business Principles 19

R522 Responsibility to Encourage Ethics Based Culture 20

R523 Remedies Exhausted 20

RESPONSIBILITIES TO THE PROFESSION

R601 Compliance 21

R602 Disciplinary Action 21

R602.1 Jurisdiction of Disciplinary Action 21

R603 Membership Obtained Fraudulently 21

R604 Admittance to Membership 21


Amended, November 2011 Page vi

R605 Responsibility for Firm 22

R606 Detrimental Actions 22

R607 Evidence of Professional Misconduct 22

R607.1 Criminal and Similar Offences 22

20

R608 Bankruptcy 22

R609 Public Statements 23

R610 Requirement to Reply in Writing 23

R611 Assistance to the Board 23

R612 Person Expelled or Suspended 23

R613 Legal Action Against a Registrant 23

R614 Use of CGA Reference by Students 23

DEFINITIONS 24

LIST OF AMENDMENTS 26

CGA ALBERTA INDEPENDENCE STANDARD (v2.0) 30


Amended, November 2011 Page 1

A professional organization and its members are granted the legal right by society to organize

themselves, to control entrance into the profession, and to formulate standards of behaviour governing

its members. In return for this right, members of the profession are to act in the interest of society and

its members. Provincial and Federal Acts, and the Code of Ethical Principles and Rules of Conduct

formalize this arrangement. In order to fulfil this responsibility, professionals must have a number of

important character traits, as well as the skill to make expert technical and moral judgements which

serve the interest of society.

Certified General Accountants thus have an important role to play in society. In the performance of that

role, many of a professional's actions have an effect on the welfare of other people. Because of their

societal responsibilities, members of a profession are obligated to act in the interest of these other

parties, who have a stake in the nature and quality of professional activities. These stakeholders include

employers, clients, various identifiable third parties, and the public at large. Therefore, the professional

organization and its members have a stake in the performance of individual members. The Code of

Ethical Principles and Rules of Conduct applies to the behaviour of members of the Association when

they either perform the role of a professional accountant or represent themselves as members of the

Association.

The role of a CGA is broad and general. It is defined in two ways: first, by specifying the tasks which

accountants characteristically perform and second, by specifying the parties who are to benefit from the

performance of those tasks and how professional accountants should act in order to benefit them.

The characteristic tasks performed by Certified General Accountants include the production, analysis,

and distribution of information. In addition, the provision of ancillary services is related to the core

expertise in accounting. The Code of Ethical Principles and Rules of Conduct governs the CGA's actions in

the performance of these tasks.

Certified General Accountants are committed to providing professional services competently and with

due care. This requires extensive knowledge and experience, and the ability to make appropriate

judgements. Competence and due care implies the necessity and ability to make ethical judgements. In

addition, CGAs are committed to improving the quality of professional services and the profession itself.

Certified General Accountants are committed to the public interest. Normally, acting in the public

interest is achieved by acting in the interest of one's client or employer. However, whenever there is a

conflict between these interests, the professional's first obligation is to the public at large. Acting

appropriately in such situations may require the courage of one's convictions.

In virtue of their commitment to the public interest, Certified General Accountants owe an obligation to

other parties. In order to satisfy that obligation, two elements of character are crucial to members of the

CGA profession. They must act with integrity and be trustworthy. Acting with integrity means that they

are committed to a high standard of behaviour and strive to achieve it in their work. It implies the

highest standard of behaviour, and thus exceeds the minimum allowable under laws, regulations, or

specific professional pronouncements. Trustworthiness means that others may safely put themselves in

a position in which a CGA is expected to help them. Integrity and trustworthiness imply the possession

of other character traits, including honesty, prudence, competence, loyalty to the proper beneficiaries

of their actions and objectivity. Objectivity in turn requires that Certified General Accountants should be

truthful and impartial, and should act fairly with regard to the interests of themselves and others.



Certified General Accountants are also committed to avoiding conflicts of interest. When a situation

arises in which a conflict either cannot be avoided, or it is undesirable to avoid from the beneficiaries'

point of view, disclosure of the conflict (and consent of the beneficiaries) is necessary. Furthermore,

CGAs are committed to protecting the confidentiality of information about their client or employer

which they obtain or produce in the course of performing their role. This protection, however, is not

absolute.

Certified General Accountants are committed to acting in accordance with all applicable laws and

professional standards. In situations where violation of some standard occurs, the burden of proof is on

the CGA to show why such an action is justifiable.

Subject to the provincial or territorial legislative requirements, the standards of conduct contained in

the Code of Ethical Principles and Rules of Conduct provide standards of acceptable behaviour of

Association members. They apply to all members of the Association, and extend to students (except

where the wording of any Rule makes it clear that it specifically relates to members only). These

standards take the form of Ethical Principles and Rules. Some of the basic principles apply to all CGAs;

others relate specifically to the role which members play when they provide professional services. They

provide a positive guide to members of the Association in their professional activities to help them make

judgements about how they ought to act. They also provide a basis for enforcing a minimum level of

acceptable behaviour.

Furthermore, for members providing professional services to clients, it is in the public interest that

members, firms, and members of assurance teams be independent of assurance clients. This

independence is necessary in order to provide a reasonable level of assurance that any engagement

conducted and subsequent report issued is grounded on professional judgement that is free of conflict

of interest or bias. These requirements are articulated in the CGA Independence Standard, which forms

an integral part of the Code of Ethical Principles and Rules of Conduct.

CGA Alberta’s Code of Ethical Principles and Rules of Conduct applies when a member performs services

outside of their own province or territory or even outside Canada. Members should be aware that other

jurisdictions may impose more restrictive standards on services performed in those jurisdictions.

Members should make every effort to be aware of these differences and comply with the more

stringent requirements and guidance unless prohibited by law or regulation.

The most important part of this document is the Code of Ethical Principles. They provide the ethical

standards in accordance with which accountants are to make their professional judgements. The Rules

of Conduct provide clear statements of required or prohibited behaviour in specific situations. They are

appropriate in areas in which the standard of acceptable behaviour is either vague or sufficiently

important to formulate a written standard.

This Code of Ethical Principles and Rules of Conduct is structured so that the Ethical Principles are

relatively general and only rarely subject to revision. As the profession and its environment change, it is

anticipated that the Rules of Conduct will be amended occasionally by addition, modification, and

deletion, as warranted.

The Regulated Accounting Profession Act of Alberta 18(1) refers to “rules of professional conduct”. CGA

Alberta’s by-laws authorize the terms “rules of professional conduct” and “Code of Ethical Principles and

Rules of Conduct” are to be interchangeable and mean the same document.



CODE OF ETHICAL PRINCIPLES

(a) RESPONSIBILITIES TO SOCIETY

Registrants have a fundamental responsibility to safeguard and advance the interests of society.

This implies acting with trustworthiness, integrity and objectivity. This responsibility extends

beyond a registrant’s own behaviour to the behaviour of colleagues and to the standards of the

Association and the profession.

(b) TRUST AND DUTIES

Registrants shall act in the interest of their clients, employers, and interested third parties, and

shall be prepared to sacrifice their self-interest to do so. Registrants shall honour the trust

bestowed on them by others, and shall not use their privileged position without their principal's

knowledge and consent. Registrants shall strive to be independent of mind and in appearance.

(c) DUE CARE AND PROFESSIONAL JUDGEMENT

Registrants shall strive to continually upgrade and develop their technical knowledge and skills

in the areas in which they practice as professionals. This technical expertise shall be employed

with due professional care and judgement.

(d) DECEPTIVE INFORMATION

Registrants shall not be associated with any information which the registrant knows, or ought

to know, to be false or misleading, whether by statement or omission.

(e) PRACTICE OF THE PROFESSION

Registrants shall act openly and fairly towards others in the practice of their profession.

(f) RESPONSIBILITIES TO THE PROFESSION

Registrants shall always act in accordance with the duties and responsibilities associated with

being members of the profession, and shall carry on work in a manner which will enhance the

image of the profession and the Association.



RULES OF CONDUCT

The Rules of Conduct provide specific statements of the minimum standards of acceptable professional

behaviour. They provide clearer statements about specific ethical issues, but do not exhaust the range

of enforceable ethical standards. They are organized under the headings of the Ethical Principles to

which they apply. The Rules of Conduct also provide guidance concerning the application of the Rules to

certain specific situations. A registrant shall, when encountered with a circumstance or relationship not

explicitly addressed in the Code of Ethical Principles and Rules of Conduct, comply with the ethical

principles when evaluating the specific facts. The registrant shall be alert for such circumstances and

relationships.

RESPONSIBILITIES TO SOCIETY

Registrants have a fundamental responsibility to safeguard and advance the interests of society. This

implies acting with trustworthiness, integrity and objectivity. This responsibility extends beyond a

registrant’s own behaviour to the behaviour of colleagues and to the standards of the Association and

the profession.

R101 Discredit

A registrant shall not permit the registrant’s firm name or the registrant’s name to be used

with, participate in, or knowingly provide services to any practice, pronouncement, or act

which would be of a nature to discredit the profession.

R102 Unlawful Activity

A registrant shall not permit the registrant’s firm name or the registrant’s name to be used

with, participate in, or provide services to, any activity which the registrant knows, or which

a reasonable and informed third party would believe, to be unlawful.

R103 Discrimination

A registrant shall not engage in a discriminatory practice on a prohibited ground of

discrimination, as those terms are defined in the Canadian Human Rights Act.

R104 Breach of Rules

A registrant shall, subject to Rules R105 and R201, notify the Association of any breach of

the Code of Ethical Principles and Rules of Conduct by another registrant, or any other

situation of which the registrant has sufficient knowledge which appears to put in doubt the

competence, reputation or integrity of registrants.

R104.1 Member Advisor

A registrant or other person appointed by the Association as an Advisor,

Discipline Mediator, or to a similar position, shall be exempt and prohibited

from reporting under these rules any matter of which the appointee becomes

aware in the course of the duties incumbent in such a position.



R104.2 Practice Review Committee

A member shall, when appointed by the Association to a Practice Review

Committee, or engaged by such a Committee to conduct a practice review, be

exempt and prohibited from reporting under these Rules any matter of which

the member becomes aware in the course of Association-related duties except

when:

(a) the Practice Review Committee files a complaint relating to a breach of

these Rules; or

(b) the practice review was made on request of a Discipline Tribunal.

R104.3 Disclosure Prohibited by Law

A registrant shall be exempt and prohibited from reporting under Rule R104

where the disclosure of such matters is otherwise prohibited by law.

R105 Criticism of a Professional Colleague

A registrant shall not criticize another professional colleague without first submitting this

criticism to that colleague for explanation. Where the criticism may result in a complaint

against the colleague being lodged with the Association, the registrant must, first, submit

that criticism in writing to the colleague for explanation. The registrant thereafter shall

inform that colleague as to the action the registrant has taken concerning the criticisms. The

lodging of a complaint against a professional colleague is considered a criticism under this

rule.

R105.1 Notice Waived

Notwithstanding Rule R105, a registrant may first submit a criticism of another

professional colleague to the Association should the matter be considered of

such a nature that prior written notice to that colleague is not appropriate.

R106 Reporting of Acts Detrimental to the Profession

A registrant shall report to the Association any situation of which the registrant has

sufficient personal knowledge and which the registrant thinks may be detrimental to the

profession.

R107 Compatible Activities

A registrant may engage in any profession, trade, industry, office, or duty except where

these undertakings are detrimental to the public good or to the standards of the profession.

R107.1 Professional Practice other than Public Accounting

A registrant engaged in the practice of public accounting may carry on a

business or practice through an organization separate from such public

accounting practice, either as a proprietor or partner, or as a director, officer, or

shareholder of a corporation, and may associate with non-members for this

purpose, subject to the following provisions:

(a) the business or practice shall not be designated “Certified General

Accountant(s)”; and



(b) no reference to any such business or practice may be made in the

letterheads, name plates, professional cards, or announcements of the

public accounting practice, nor may reference be made to the public

accounting practice in the letterheads, name plates, professional cards,

or announcements of any such business or practice.

R107.2 Constraints on a Professional Practice other than Public Accounting

A registrant engaged in a professional practice other than public accounting but

not also engaged in the practice of public accounting may, in carrying on such a

practice, conduct these affairs (or the firm's or corporation's affairs) free of the

constraints imposed upon registrants engaged in the practice of public

accounting, but not in such a fashion as to bring disrepute on the profession or

the Association.

R107.3 Referral for a Commission

A registrant practising as described in Rule R107.2 shall not refer a client for

services to another registrant in the practice of public accounting for a

commission or other compensation.

R107.4 Use of Normal Business Methods

A firm or corporation carrying on a business or practice as described in Rule

R107.1 may use normal business methods to solicit business for its own

functions, but such methods may not be used, or appear to be used, for the

solicitation of clients for the public accounting practice with which the registrant

is associated.

R108 Conduct Unbecoming

A registrant, whether acting in a professional capacity or otherwise, shall not

engage in conduct which reflects negatively on the registrant’s honesty,

integrity, or trustworthiness or suitability as a registrant of the profession.



TRUST AND DUTIES

Registrants shall act in the interest of their clients, employers, and interested third parties, and shall

be prepared to sacrifice their self-interest to do so. Registrants shall honour the trust bestowed on

them by others, and shall not use their privileged position without their principal's knowledge and

consent. Registrants shall strive to be independent of mind and in appearance.

R201 Confidentiality

A registrant shall not disclose or use any confidential information acquired as a result of

professional or business relationships without proper and specific authority or except as

described in Rules R201.1 and R201.2.

R201.1 Mandatory Disclosure

A registrant shall disclose information:

(a) where disclosure is compelled by a process of law or by statute; or

(b) where such information is required to be disclosed by the Board of the

Association or any of its Committees appointed thereby in the proper

exercise of its duties.

R201.2 Discretionary Disclosure

A registrant is not forbidden from disclosing the information:

(a) where properly acting in the course of the duties incumbent on a

registrant; or

(b) where a registrant becomes aware of an apparent or suspected criminal

activity. Before making such a disclosure, a registrant should obtain

advice from a member of the appropriate provincial or territorial law

society as to the registrant’s duties and obligations as a citizen in the

context of the registrant’s professional activities. A registrant so doing

shall not be in violation of this Rule regarding confidentiality by reason

only of the seeking or following of such legal advice or reporting; or

(c) where justified in order for a registrant to defend the registrant’s

associates or employees, as the case may be, against any lawsuit or

other legal proceeding, or against alleged professional misconduct, but

only to the extent necessary for such purpose.

R201.3 Confidentiality by a Person Contracted by a Registrant

A registrant engaged to perform a particular service may contract for the

services of a person not employed by the registrant to assist in the performance

of that service, provided the registrant first obtains agreement from that person

to carefully and faithfully preserve the confidentiality of any information used

for the purposes of the engagement, and not to make use of such information

other than as required in the performance of such services.



R202 Independence

Independence requires:

(a) Independence of mind:

The state of mind that permits the provision of an opinion without being

affected by influences that compromise professional judgment, allowing

an individual to act with integrity, and exercise objectivity and

professional skepticism.

(b) Independence in appearance:

The avoidance of facts and circumstances that are so significant that a

reasonable and informed third party, having knowledge of all relevant

information, including safeguards applied, would reasonably conclude a

registrant, firm, or a member of the assurance team’s, integrity,

objectivity or professional skepticism had been compromised.

R202.1 Independence in Assurance or Specified Auditing Procedures Engagements

In accordance with the CGA Independence Standard, a registrant shall be free of

any interest, influence or relationship in respect of the client’s affairs which

impairs the registrant’s professional judgment or objectivity, or which, in the

view of a reasonable observer, may have that effect.

A registrant shall comply with the requirements set out in the CGA

Independence Standard.

(a) Communication

A registrant shall not issue a communication in an assurance

engagement or specified auditing procedures engagement unless the

registrant has identified any threats to independence and evaluated the

significance of those threats. If the threats are other than insignificant,

the registrant shall either eliminate those threats, apply safeguards to

reduce those threats to an acceptable level, or decline to accept or

continue the engagement.

(b) Prohibitions

A registrant shall comply with the prohibitions set out in the CGA

Independence Standard. Prohibitions are denoted within the Standard

by italics. Prohibitions are not limited to those specifically identified in

the Standard, but must be determined by the registrant’s application of

professional judgment in assessing the situation in accordance with the

framework contained in the Standard.

(c) Compliance of the firm

A registrant shall ensure that staff of the firm remain free of any

interest, influence or relationship that would preclude the firm from

performing the engagement pursuant to paragraphs (a) and (b) of this

Rule and Rule R202.2.



(d) Documentation

A registrant shall document all threats to independence and either the

decision to continue the engagement with the appropriate safeguards

or the decision to decline the engagement.

(e) Requirement to disclose prohibited interest, influence and

relationships

A registrant who has an interest, influence or relationship that is

precluded by this Rule shall advise the firm in writing of the interest,

relationship or service.

R202.2 Independence in Insolvency Engagements

A registrant who provides any services in relation to insolvency shall be free of

any interest, influence or relationship in respect of the client’s affairs which

impairs the registrant’s professional judgment or objectivity, or which, in the

view of a reasonable observer, may have that effect.

R202.3 Independence in Other Professional Services

(a) Requirement to disclose interest, influence and relationships

A registrant who provides any services not subject to R202.1 and R202.2

and the CGA Independence Standard shall disclose in writing to the

client or employer any interest, influence or relationship in respect of

the client’s or employer’s affairs which impairs the registrant’s

professional judgment or objectivity, or which, in the view of a

reasonable observer, may have that effect.

(b) Parties to the same transaction

Pursuant to Rule R202.3(a) a registrant shall, when rendering advice to

two or more clients who are parties to the same transaction advise in

writing that confidential information obtained may be disclosed to

other parties to the transaction. In addition, each party to the

transaction must provide written consent to the registrant

acknowledging these terms.

R202.4 Compilation Engagements

A registrant may issue a compilation engagement report as long as appropriate

disclosure of any interest, influence or relationship between the registrant and

the client is made in the compilation engagement report.

R203 Information Used for Personal Advantage

A registrant shall not, without an employer's or client's consent, use confidential

information relating to the business of the registrant’s employer or client to directly or

indirectly obtain a personal advantage. Registrants shall not take any action, such as

acquiring any interest, property or benefit, in connection with which unauthorized use is

made of confidential knowledge of an employer's or client's affairs obtained in the course of

his duties.



R204 Custody of Client Assets

Registrants who handle money or other property in trust shall do so in accordance with the

terms of the trust and the general law relating to trusts; the registrant shall maintain such

records as are necessary to account properly for the money or other property.

R204.1 Money or Other Assets Held in Trust

All money held in trust shall be kept in a separate trust account or accounts in

any bank, credit union, or trust company subject to the terms under which the

money is held. Members entrusted with money (or other assets) belonging to

others should:

(a) Keep such assets separately from personal or firm assets;

(b) Use such assets only for the purpose for which they are intended;

(c) At all times, be ready to account for those assets, and any income,

dividends or gains generated, to any persons entitled to such

accounting; and comply with all relevant laws and regulations relevant

to the hold and accounting for such assets.



DUE CARE AND PROFESSIONAL JUDGEMENT

Members shall strive to continually upgrade and develop their technical knowledge and skills in the

areas in which they practice as professionals. This technical expertise shall be employed with due

professional care and judgement.

R301 Competence

A member shall sustain professional competence by keeping informed of, and complying

with, developments in the acknowledged standards of the profession in all areas in which

the member practices or is relied upon because of the member's profession.

R302 Professional Development

A member shall undertake continuing education and professional development activities in

accordance with the standards and policies established by the Association.

R303 Adherence to Acknowledged Principles and Standards

Registrants shall adhere to acknowledged principles and standards of professional practice.

The phrase “acknowledged principles and standards” expresses a wide meaning, namely

that body of principles and practices which have been generally adopted by the profession

and which are applied in the preparation of financial statements, taken together with the

requirements of any governing statutes, subject to below. That is, a registrant shall adhere

to:

(a) generally accepted accounting principles in financial reporting unless

departure from these principles is fully disclosed.

(b) generally accepted auditing standards or general review standards in an

assurance engagement.

(c) accounting and auditing practices that differ from those recommended

by the Association, provided that there is substantial authoritative

support for alternative treatment and the departure from the

Association's recommendations is disclosed;

(d) accounting and auditing practices not specifically dealt with by the

Association but which are otherwise generally accepted;

(e) requirements of any governing act or regulation, providing, however, in

the event that there is a conflict between the accounting and auditing

standards of the profession and a specific statutory or regulatory

requirement, the registrant shall make appropriate qualification in the

report; and

(f) accounting and auditing practices and standards recommended by the

Association, including those found in:

(i) the CICA Handbook; wherein references to the Rules of

Conduct/Code of Ethics of the provincial institutes/order appear,

this should be read as the CGA Code of Ethical Principles and

Rules of Conduct;

(ii) the CGA Independence Standard; and

(iii) the CGA Canada Public Practice Manual.



R304 Terms of Engagement

A registrant shall state clearly in writing to a client the nature and scope of services to be

rendered under the terms of the engagement.

R305 Sufficient Information

A registrant shall not permit the firm name or the registrant’s name to be used with any

communication or recommendation concerning financial information unless the registrant

has considered all the information required to support such communication and/or

recommendation.

R306 Tax Services

In the provision of tax services, the following rules shall apply:

R306.1 Tax Advice may Favour Clients

A registrant rendering tax advice is entitled to put forward the best position in

favour of a client or employer, provided:

(a) it is rendered with professional competence,

(b) it does not in any way impair the registrant’s integrity and

trustworthiness,

(c) it is, in the professional judgement of the registrant, consistent with the

law, and

(d) there is reasonable support for the position.

R306.2 Tax Advice has Limitations

A registrant shall not hold out to a client or an employer that the tax filing

prepared and the tax advice offered are beyond challenge. The registrant shall

ensure that the client or the employer is aware of the limitations attached to tax

advice so that they do not misinterpret an expression of opinion as an assertion

of fact.

R306.3 Filing Responsibility is Client’s

A registrant who undertakes or assists in the preparation of a tax filing shall

advise the client or employer that the responsibility for the content of the filing

rests primarily with the client or employer. The registrant shall not be

associated with any filing about which there is reason to believe that it contains

statements or information furnished recklessly by the client, or without the

client having any real knowledge of whether they are true. The registrant shall

take the necessary steps to properly prepare the tax filing on the basis of the

information received.



DECEPTIVE INFORMATION

Registrants shall not be associated with any information which the registrant knows, or ought to

know, to be false or misleading, whether by statement or omission.

R401 Communication Issued in Connection with Financial Information

A registrant shall not issue a communication on any financial information, whether for

publication or not, when the information is prepared in a manner which might tend to be

misleading.

R402 Association with Financial Information

A registrant shall not be associated with any letter, report, statement, representation,

financial statement, or tax filing, whether written or oral, which the registrant knows, or

should know, is false or misleading, regardless of any disclaimer of responsibility.

R402.1 Employer/Employee Conflicts

It is recognized that under exceptional circumstances, compliance with Rule

R402 may place a registrant in a difficult position vis-à-vis the registrant’s

employer. Nevertheless, professional duty is failed if the registrant fails to

comply with Rule R402:

R403 Known Omission

A registrant shall disclose any fact or information known to the registrant which is not

disclosed in the financial information, the omission of which would make that information

misleading.

R404 Material Discrepancy

A registrant shall immediately disclose any material discrepancy that becomes known to the

registrant concerning financial information on which the registrant has issued a

communication, or with which the registrant is associated.



PROFESSIONAL PRACTICE

Registrants shall act openly and fairly towards others in the practice of their profession.

R501 Unfair Methods of Competition

A registrant shall not engage in unfair methods of competition in providing quotes or

obtaining customers. Unfair methods of competition include but are not limited to price

fixing and conspiring to allocate customers.

R502 Impairment of Incumbent Accountant

A registrant shall not, when accepting a special assignment (whether by referral or

otherwise) from a client of an accountant who is continuing in the relationship with that

client, take any action which would tend to impair the position of the other accountant in

the on-going work with that client.

R503 Services Provided on Referral

A registrant shall not, when receiving a special assignment for services by referral from

another accountant, provide or offer to provide any different services to the referring

accountant's client without the consent of the referring accountant. The referring

accountant shall not unreasonably withhold such consent.

R504 Replacement

A registrant engaged in the practice of public accounting shall, before accepting an

appointment to replace another professional accountant or firm, inquire from such other

person or firm in writing whether there is any professional reason why such appointment

should not be accepted.

R505 Takeover

(a) A registrant engaged in the practice of public accounting shall respond

promptly to takeover letters received from other professional

accountants. The registrant shall supply reasonable information to the

successor accountant about the work being assumed. There must be

readiness to co-operate with the successor, recognizing that the client's

interests are paramount.

(b) A registrant shall transfer to the client, or on the client's instructions, to

the newly appointed accountant, all books and documents belonging to

the client which are in the registrant’s possession.

R506 Fees

A registrant engaged in the practice of public accounting shall establish a fee structure and

shall ensure that a fee quoted and/or charged to a client for the performance of

professional services is sufficient in that:

a) Independence, where required, will not be impaired;

b) Qualified members of the firm will be assigned to the engagement and

will devote appropriate time to it; and

c) The quality of work will not be impaired and that due care will be

applied to comply with all applicable professional standards, guidelines,

and quality control procedures in the performance of those services.



R506.1 Absence of Fees

Providing the conditions in R506 (i), (ii) and (iii) are met, a registrant is permitted to provide

pro bono professional services.

R507 Referral Fees (a) A registrant engaged in the practice of public accounting may pay or

receive a referral fee or commission relating to a client if such payment

is paid or received for referring a client to, or from, another professional

colleague engaged in the practice of public accounting. Accepting such a

referral fee or commission may give rise to threats to objectivity and

professional competence and due care. In such instances, a registrant

shall establish precautions that include:

(i) Disclosing to the client any arrangements to pay or receive a referral

fee or commission; and

(ii) Obtaining advance agreement from the client for such

arrangements.

(b) A registrant engaged in the practice of public accounting may purchase

or sell all or part of a firm. Payments in respect of such sale are not

regarded as commissions or referral fees for the purposes of this rule.

R508 Contingent Fee

A registrant engaged in the practice of public accounting or related business or practice

shall not enter into a contingent fee arrangement in respect of

(a) an assurance engagement; or

(b) a compilation engagement; or

(c) original tax return preparation for a fee.

R508.1 Contingent Fees Non-Assurance Services

A registrant engaged in the practice of public accounting or related business or

practice may charge a contingent fee in respect of a non-assurance service,

provided:

(a) It does not create any interest, influence or relationship which impairs

the members professional judgment or objectivity of the member or

firm, or which, in the view of a reasonable and informed third party, may

have that effect in respect of an engagement described in R508 (a); or

(b) It does not create any influence, or which, in the view, of a reasonable

and informed third party, may have that effect in respect of any

engagement as described in 508 (b)performed by the member or firm

for the same client; and

(c) A written agreement with the client detailing the basis of remuneration

is obtained in advance of the engagement.



R509 Advertising and Other Forms of Solicitation

A registrant shall not seek to obtain clients by advertising, or other form of solicitation that:

(a) is false or deceptive;

(b) includes the use of harassing conduct;

(c) creates an unjustified expectation of favourable results;

(d) contains self-laudatory statements that are not verifiable.

R509.1 Misleading Name of Firm or Style of Practice

A registrant shall not engage in the practice of public accounting, or in any

function consistent therewith, under a name or style which is misleading as to

the nature of the firm or the nature of the functions performed.

R509.2 Preferred Areas of Practice

A registrant shall be permitted to refer to preferred or restricted area(s) of

practice in advertising, on business cards, or on letterhead; however, such

preferred or restricted area(s) of practice shall not be referred to as a specialty

unless the requirements of the Association have been satisfied.

R510 Use of Descriptive Style “Certified General Accountant(s) in the Name of Firm

(a) Members engaged in the practice of public accounting shall practice under

the descriptive style “Certified General Accountant(s)”.

(b) The plural use of the descriptive style Certified General Accountants

shall only be used in a partnership where all partners are members or a

professional corporation where all voting shareholders are members

(c) NotwithstandingR510(a) if a member is engaged in the practice of public

accounting with a professional colleague who is a non-member and

whose name forms a part of the firm name, then the firm shall not use

the descriptive style “Certified General Accountants(s)” if

(i) The non-member’s name forms a part of the firm name; or

(ii) The partners who are members exercise less than 50% legal

control of the firm.

510.1 Name of Firm

In addition to R510, all registrants engaged in the practice of public accounting would

ordinarily practise under the registrant’s name(s), or if engaged in the practice of public

accounting in partnership, corporation or professional corporation, practise under at least

one of the partners’ names or voting shareholders’ names. Partners’ or voting shareholders’

names are those who are or have been associated with the firm. Subject to legislative

requirements for naming partnerships or professional corporations, where the firm consists

of more than one partner or shareholder, the firm name may consist of any combination or

initials drawn from the first letter of partners, former partners, voting shareholders or

former voting shareholders last name.



If a registrant wishes to practise under a firm name other than that permitted above, the

registrant may practise only under a name or style which:

(a) Is not misleading, confusing, false or deceptive or which creates an

unjustified expectation of favourable results;

(b) Is not self-laudatory;

(c) Does not contravene professional good taste; and

(d) Has been approved by the Association.

R510.2 – Style of Practice

All registrants engaged in the practice of public accounting must ensure the firm name

clearly identifies the style of practice and complies with Rule R509.1 as follows:

(a) If practising as a professional corporation, make it clearly understood to

the public that the registrant is practising as a professional corporation

and ensure that the firm name consists of a name that is allowed under

this rule and the appropriate legislation.

(b) If practising as a corporation, where the firm consists of one or more

practitioners, make it clearly understood to the public that the firm is

incorporated and ensure that the firm name consists of a name that is

allowed under this rule and the appropriate legislation.

(c) If practising as a limited liability partnership, make it clearly understood

to the public that the firm is a limited liability partnership and ensure

that the firm name consists of a name that is allowed under this rule

and the appropriate legislation.

(d) The addition of “& Co.” or other similar term is permitted only where

the registrant employs staff, where the number of partners exceeds that

named in the firm name, or where the registrant is practising with one

or more professional colleagues who are not partners or employees.

(e) If a registrant is practising in a partnership make it clearly understood to

the public that the firm is a partnership and ensure that the firm name

consists of a name that is allowed under this rule and a descriptive style

permitted under Rule 510.

R510.3 Application

A firm engaged in the practice of public accounting as of September 30th, 1996,

and whose name at that date included the phrase “& Co” or other similar

wording as permitted by the Rules then in effect, may continue to use such

name for as long as that firm is engaged in the practice of public accounting

under that name.

R510. 4 Legal Change of Registrant's Name

A registrant whose name is legally changed may continue to use the former

name in the name of the firm without being considered in breach of this Rule.



R511 Responsibility and Control

(a) A registrant engaged in the practice of public accounting who is

associated with a non-member in such practice, shall be responsible to

the Association for any failure of such non-member, in respect of such

practice, to abide by the Code of Ethical Principles and Rules of Conduct

of the Association. In the application of this rule, the rules of CEPROC

are deemed to apply as if such non-member were a member.

(b) A registrant engaged in the practice of public accounting shall personally

undertake, or delegate to a certificated member of the Association or a

professional colleague the responsibility for each office maintained by

the registrant or the registrant’s firm. Such registrant(s) or professional

colleague(s) shall normally be accessible to meet the needs of the

clients of such office(s).

R512 Association of Member with Non-Members in the Practice of Public Accounting

A registrant shall not associate in any way with a professional colleague who is a non-

member in the practice of public accounting unless:

(a) such association maintains the good reputation of the profession and its

ability to serve the public interest; and

(b) such business or practice establishes and maintains policies, procedures

and arrangements suitable for ensuring:

i) that every such non-member professional colleague is

knowledgeable of and complies with:

• Athe Association’s governing legislation, regulations,

bylaws and Code of Ethical Principles and Rules of

Conduct; and

• the ethical and other regulations applicable to members

of a recognized professional organization or regulated

body of which the non-member professional colleague

is a member; and

ii) that no style or presentation or communication is used which

implies that the non-member professional colleague is a

member.

R513 Specialization

A registrant shall not use the title of “Specialist” unless all the requirements set by the

Association have been satisfied.

R514 Marketing of Goods and Services

A registrant engaged in the practice of public accounting shall not market goods and

services at a profit, other than professional services, through the registrant’s public practice

firm.



R515 Registration

A registrant or firm shall, if engaged in the practice of public accounting part time or full

time, register in accordance with the requirements prescribed by the Association

R516 Practice Review Requirements

A registrant shall comply with, and adhere to, the practice review requirements of the

Association and the standards contained therein.

R517 Professional Liability Insurance

A registrant engaged in the practice of public accounting shall maintain professional liability

insurance as specified and provide evidence as required, by the Association.

R518 Service by an Employee

A registrant shall not permit an employee to perform professional services which the

registrant is not permitted to render unless the employee has been granted a license to

perform such professional services.

R519 Relations with Clients or Employers

Subject to Rule R204.1, a registrant shall not, when acting on behalf of a client or employer,

bargain for the registrant’s own use any fee, remuneration, or benefit from a third party

without the client's or employer's written consent.

R520 Students Engaged in the Practice of Public Accounting

Subject to Rule R614, a student, except where permitted, shall not engage in the practice of

public accounting independently, or in association with others. This Rule shall not restrict a

student from being an employee of a firm.

R521 General Business Principles

Registrants in business may be solely or jointly responsible for the preparation and reporting

of financial and other information, which both their employing organizations and third

parties may rely on. They may also be responsible for providing effective financial

management and competent advice on a variety of business-related matters. Registrants in

business are often involved in the preparation and reporting of information that may either

be made public or used by others inside or outside the employing organization. Such

information may include financial or management information; for example, forecasts and

budgets, financial statements, management discussion and analysis, and the management

letter of representation provided to the auditor’s audit of the entity’s financial statements.

As such, a registrant shall:

(a) Recognize that investors, creditors, employers and other sectors of the business

community, as well as governments and the public at large, all may rely on the work

of a registrant in business;

(b) Prepare or present such information fairly, honestly and in accordance with relevant

professional standards so that the information will be understood in its context;

(c) Recognize their responsibility to further the legitimate aims of their employing

organization.



R522 Responsibility to Encourage an Ethics-based Culture

A registrant shall recognize that the more senior their position, the greater their ability and

opportunity to influence events, practices and attitudes. A registrant shall encourage an

ethics-based culture in their organization that emphasizes the importance of ethical

behaviour.

R523 Remedies Exhausted

In circumstances where a registrant believes that unethical behaviour or actions by others is

occurring or will continue to occur within the organization, the registrant shall consider

obtaining legal advice. In a situation where all available remedies have been exhausted, a

registrant in business shall consider whether the only appropriate action is to resign from

the employing organization.



RESPONSIBILITIES TO THE PROFESSION

Registrants shall always act in accordance with the duties and responsibilities associated with being

members of the profession, and shall carry on work in a manner which will enhance the image of the

profession and the Association.

R601 Compliance

A registrant shall comply with the By-laws and the Code of Ethical Principles and Rules of

Conduct of the Association as amended from time to time, and with any order or resolution

of the Board or its committees under the By-laws.

R602 Disciplinary Action

A registrant shall be subject to disciplinary action for any offence which constitutes a breach

of professional conduct.

R602.1 Jurisdiction of Disciplinary Action

A registrant shall be subject to disciplinary action only through the registrant’s

Provincial Association or Ordre Professionel. In circumstances where no

Provincial Association or Ordre Professionel has jurisdiction, the registrant shall

be subject to disciplinary action by the Board of Directors of CGA Canada as

provided by the By-laws.

R603 Membership Obtained Fraudulently

(a) A registrant shall not obtain admission to membership by means of

fraud or other irregularity.

(b) A registrant shall notify the Association immediately regarding a person

who has obtained membership by means of fraud or other irregularity.

R604 Admittance to Membership

(a) A registrant shall report to the Association a fact known to that

registrant sufficient to affect the admittance of any person whose

admission may be detrimental to the Association.

(b) An individual shall, when applying to become a registrant not sign or be

associated with any related letter, report, statement or representation

which the applicant knew, or should have known, was false or

misleading.



R605 Responsibility for Firm

A registrant engaged in the practice of public accounting who

(a) is associated with a firm or corporation carrying on a business

or practice as described in Rule R107, whether as principal, partner,

director, officer, or shareholder, and

(b) has a significant influence on the ownership or management of

such firm or corporation,

shall be responsible to the Association for any failure of such firm or corporation to abide by

the Code of Ethical Principles and Rules of Conduct of the Association.

R606 Detrimental Actions

(a) A registrant shall not participate in any action which is

detrimental to the Association or the profession.

(b) A registrant shall, subject to Rules R201 and R514, report to the

Association any situation of which the registrant has sufficient

personal knowledge and which the registrant thinks may be

detrimental to the Association or the profession.

R607 Evidence of Professional Misconduct

A registrant who has been found guilty or granted an absolute or conditional discharge of

any criminal or similar offence which may cast doubt as to that registrant’s honesty,

integrity, or professional competency, shall promptly inform the Association of the

conviction, finding of guilt or discharge, as the case may be, when the right of appeal has

been exhausted or expired. In such cases, the registrant may be charged with

unprofessional conduct by the registrant’s Provincial Discipline Tribunal. A certificate of

conviction by any competent court shall be sufficient evidence of the conviction and the

perpetration of the offence.

R607.1 Criminal and Similar Offences

Criminal or similar offences include, but are not limited to, the following

offences:

(a) fraud, theft, forgery or income tax evasion;

(b) violation of the provisions of any securities legislation; or

(c) any criminal or similar offence for conduct in, or related to, the

registrant’s professional capacity, or for conduct in

circumstances where there was reliance on their membership

in, or association with, the Association.

R608 Bankruptcy

A registrant shall immediately notify the Association if the registrant becomes bankrupt.



R609 Public Statements

A registrant shall not make public statements or comments which may be interpreted as

representing the Association or its views, except when authorized to act as an “official

spokesperson” for the Association.

R610 Requirement to Reply in Writing

A registrant shall promptly reply in writing to any request from the Association in which a

written reply is specifically required.

R611 Assistance to the Board

A registrant shall, when required, comply with the request of the Board or its committees in

the exercise of their duties in matters of the appropriate certified general accountants

legislation, the Bylaws or the Code of Ethical Principles and Rules of Conduct, and when

required, produce any documents in the registrant’s possession, custody, or control, subject

to Rules R201, R104.2, and R104.3.

R612 Person Expelled or Suspended

A registrant shall, before knowingly employing a person who has been expelled or who is

under suspension from any accounting body, obtain through the Association the facts

concerning the expulsion or suspension.

R613 Legal Action Against a Registrant

A registrant shall, before entering into a legal action against another registrant which might

discredit the profession, give the Association as much notice as is possible of such an

intention, outlining the basis of the proposed action.

R614 Use of CGA Reference by Students

Students shall not make any reference to the Certified General Accountants' Association, its

name or its designation, on stationery, business cards, business announcements, business

directories, office signs or advertising.



DEFINITIONS

“Association”

CGA Canada: The Certified General Accountants' Association of Canada.

Provincial: The Certified General Accountants' Association or Ordre Professionel of

any province or territory.

“Board”

CGA Canada: The Board of Directors and/or the Affiliation Council of the Certified

General Accountants Association of Canada.

Provincial: The Board of Governors of the Certified General Accountants'

Association or Ordre Professionel of any province or territory.

“Client”

The person or entity engaging a member as an independent contractor for the performance of

professional services.

“Communication”

A written communication that expresses a conclusion on the subject-matter for which there is an

accountability relationship, and includes audit and review engagements.

“Financial Statements or Information”

Statements, reports, and footnotes related thereto that purport to show an entity's financial position,

or results of operations, or changes in financial position. The term includes balance sheets, income

statements, statements of changes in financial position, and statements of changes in owners' equity.

The term does not include incidental financial data included in management advisory or similar reports

to support recommendations to a client.

“Firm”

A proprietorship, partnership, limited liability partnership, professional corporation or a corporation

engaged in the practice of public accounting.

“Member”

An individual who holds a Certified General Accountant designation.

“Member Advisor”

A person or persons appointed by the Association for the specific purpose of providing professional

assistance to registrants, including registrants engaged in or entering the practice of public accounting.

“Practice of Public Accounting” Providing or offering to provide one or more of the following services to the public, whether for reward or not:

• an assurance engagement;

• a specified auditing procedures engagement;

• a compilation engagement;



• an accounting service insofar as it involves summarization, analysis, advice, counsel or

interpretation but excluding an accounting service which is incidental to the provider’s primary

occupation which is not public accounting;

• forensic accounting, financial investigations or financial litigation support services;

• advice, counsel or interpretation with respect to taxation matters; and

• the preparation of a tax return or other statutory filing.

A registrant who is ‘employed’ in the practice of public accounting is not considered to be ‘engaged’ in the

practice of public accounting.

“Practitioner”

A registrant who is registered to practice public accounting in accordance with Rule R515.

“Profession”

The profession of accountancy.

“Professional Colleagues”

An accountant recognized by statutory authority.

“Professional Services”

Any services performed or offered to be performed by a registrant for a client or employer, in which

the registrant asserts membership in the Association. In addition, “professional services” refers to

those activities including the provision of goods, where the public or the registrant’s associates are

entitled to rely on the registrant’s membership in the Association as giving particular competence.

“Public Accountant”

Unless otherwise specified by legislation, any person engaged in the practice of public accountancy.

“Registrant”

A certified general accountant, a professional service provider, a student, a public accounting firm,

and a professional corporation.

“Registrant in Business”

A registrant employed or engaged in an executive or non-executive capacity in such areas as commerce,

industry, service, the public sector, education, the not for profit sector, regulatory bodies or professional

bodies, or a registrant contracted by such entities.

“Staff”

Encompasses all employees, partners or any other person that would reasonably be considered staff.

Staff includes contractors and sub-contractors that would not normally be considered.

“Student”

An individual who is enrolled in the Association's program of professional studies. A student must

observe these Rules except where the wording of any Rule makes it clear that it specifically relates to

members or there is a specific exception made in a particular Rule.



Amendments Ratified by Membership November 7, 1998

1. Amendment - Name change from Statement of Ethical Principles and Rules of Conduct to Code of Ethical Principles

and Rules of Conduct.

2. Amendment - R511

3. Deletion - R511.1


1. Deletion – The title “Preamble” in the opening text of the Code document.

2. Amendment – Minor grammatical changes to sections of the opening text of the Code document.

3. Amendment – Addition of previous Rule R108 to the opening text of the Code document. Rule R108 subsequently

deleted.

4. Amendment – R104

5. Amendment – R104.1

6. Deletion – R108 – moved to opening text of Code document.

7. Amendment – Trust and Duties opening paragraph




11. Amendment – R202.5 (a)

12. Amendment – R202.5 (b) (ii)


14. Amendment – R202.7 (c)





19. Amendment – R303 (a)



22. Deletion – R402.1 (a)

23. Deletion – R402.1 (b)


25. Amendment – R505 (a)





30. Deletion – R509.3


32. Deletion – R512









41. Deletion – R520 (a)

42. Addition – New R520



45. Amendment – Definitions – Professional Services

46. Amendment – Definitions – Public Practice







Amendments Ratified by Membership October 25, 2001

1. Amendment – Introductory Preamble – added paragraph at the end about rules of professional conduct

2. Amendment – Parenthetical Heading under Code of Ethical Principles and Rules of Conduct (Bylaw 6000)

deleted


1. Amendment – Rule R510.1


1. Amendment – “member” replaced by “registrant” throughout to incorporate the broader definition clarified in RAPA,

except where a rule specifically applies to a member (Board Resolution 03-37)

2. Amendment –conduct related terminology throughout has been changed to wording consistent with RAPA (Board Resolution 03-37)

3. Amendment - Rule R402 (Board Resolution 03-37)

4. Amendment – Rule R611 (Board Resolution 03-37)

5. Amendment – “communication” redefined to be consist with RAPA (Board Resolution 03-37)

6. Amendment – Rule R512 (Board Resolution 03-38)

7. Addition - “Registrant” added as a definition (Board Resolution 03-37)

Amendments Ratified by Membership October 8 (AGM) and October 18 (mail vote), 2005

1. Amendments – definitions “firm”

2. Addition - definitions “practitioner”, “professional colleague”, “staff”

3. Amendment – change to the Principle of Trust and Duties

4. Amendment – Rule R105

5. Deleted – current Rule R105.2

6. Addition – Rule R107.4 (was Rule R605.1)

7. Deleted – Rule R303, and moved to Rule R511

8. Amendment - Rule R605.1 moved to be Rule R107.4

9. Amendments – Rule R201, R201.1 and R201.2

10. Deleted – Rules R202, R203 and R204

11. Addition - Rules R202 to R202.4

12. Renumber – Rules R205 and R206 to become Rules R203 and R204

13. Deleted– Rule R303 (moved to become Rule R511)

14. Renumber - Rules R304 to R307.4 to become Rules R303 to R306.3

15. Renumber – Rule R304 to R303



18. Deleted – Rules R510, R510.1, R510.2, R510.3, R510.4, R510.7; R512 and R513

19. Addition – Rule R510, R510, new R 511 (formerly R303) and R512;

20. Renumber – old R511 to become R513

21. Amendment - Rule R515

22. Deleted – Rule R605.1 (moved to R107.4)



Amendments to Independence Standards Ratified by Membership October 13, 2006

1. Amendment – definitions “audit client”, “related entity”; “listed entity” changed to “reporting issuer”, and amended;

“staff”

2. New Definitions – “fund manager”, “mutual funds”

3. Amendment – “listed entity” changed to “reporting issuer” changed throughout the document

4. Amendment – Section 3 Engagement Period, subsection “Listed Entity” changed to “reporting issuer”

5. Amendment – Section 4 subsection Financial Interest – “staff” included in Financial Interest; “no longer material”

changed “clearly insignificant” in the following clauses: 4.7; 4.11; 4.17; 4.18; 4.19; 4.20; 4.24; 4.26; 4.27.

6. Amendment – Section 4, subsection Long Association of Senior Staff – “Listed Entities” changed throughout to

“Reporting Issuers”; amendment to 4.61(c) and new 4.61(d)

7. Amendment – Section 4, subsection 4.63 Provision of Non-assurance Services – added in second paragraph “staff of

the member”

8. Amendment – Section 4, subsection 4.65; 4.80; 4.88; 4.93; 4.100; 4.120; and 4.122 added “or staff of the member,

firm or network firm”

9. Amendment – Section 4, subsection 4.114, 4.115, and 4.116 added “or network firm”

Amendments Ratified by Membership November 2009

1. Amendment – change member or student to registrant where appropriate

2. Amendment - Preamble, Paragraph 10 added “Subject to the provincial or territorial legislative requirements”

3. Amendment – Preamble, Paragraph 11 amended to tailor code to provincial legislation and insure compliance with

the IFAC Statement of Member Obligations

4. Amendment – 5th

Ethical Descriptor Code of Ethical Principles Professional Practice changed to Practice of the

Profession

5. Amendment – Rule R102 changes prudent person to informed third party

6. Amendment – Rule R204 changes Trusteeship to Custody of Client Assets

7. Amendment and Addition – Rule R204.3 Money Held in Trust changed to Money or Other Assets Held in Trust;

addition of guidance to practitioner

8. Amendment and Addition – Rule R508 clarifies circumstances and provides guidance to practitioner

9. Amendment – Rule R510 clarified intent of two section (d) and (e), and combined them into one.

10. Amendment – Rule R510.2 use of sole practitioner deleted

11. Amendment – Rule R510.3 changed sole practitioner or partnership to firm

12. Amendment – Rule R511 changed to allow office to be open without necessity of responsible person’s presence

13. Amendment – Rule R514 deleted term public practice to describe firm

14. Amendment – Rule R520 deleted term public practice to describe firm

15. Amendment – Definition Public Accounting – changed to Practice of Public Accounting

a. New definition Public Practice

Amendments Ratified by Membership November 2010

1. Amendment – Complete Independence Standard, v2

Amendments Proposed for Ratification by Membership November 2011

1. Amendment – paragraph 11 added to the Preamble

2. Amendment – opening paragraph of “Rules of Conduct”

3. Adding a new Rule R108 – Conduct Unbecoming

4. Amendment Rule R303 – Adherence to Acknowledged Principles and Standards

5. Amendment to Rule R506 – Fees

6. New Rule R506.1 – Absence of Fees

7. Amendment Rule R507 – Referral Fees

8. Amending Rule R510 – Name of Firm

9. Amending Rule R510.1 – Style of Practice

10. Amendment R510.2 – Use of Descriptive Style

11. Re-ordering Rules R510.2 – Application to R510.3 and R510.3 Legal Change of Member’s Name to 510.4

12. New Rule R521 – General Business Principles



13. New Rule R522 – Responsibility to Encourage an Ethics-based Culture

14. New Rule R523 – Remedies Exhausted

15. Amendment - definition of Board

16. New definition - Registrant in Business

17. Amendment the definition of Practice of Public Accounting

18. Amendments to Rule R107.4, R509.1 and R512 to incorporate the amendment of the definition of practice of public

accounting.

The rest of this page

intentionally left blank

Independence Standard Version 2.0

CGA-Canada Independence Standard

v.1 Draft 2.2 July 04 edit Page 2

Certified General Accountants’ Association of Alberta

100 325 Manning Road NE

Calgary Alberta T2A 2E

Certified General Accountants Association of Canada

100 – 4200 North Fraser Way

Burnaby, British Columbia

Canada V5J 5K7

© CGA-Canada, 2009

All rights reserved. These materials or parts thereof may not be reproduced or used in any manner

without the prior written permission of the Certified General Accountants Association of Canada.

Second Edition, Version 2.0

Printed in Canada PRO 160/05

CGA Alberta Independence Standard

Version 2.0 March 2010 Page 1

TABLE OF CONTENTS

INDEPENDENCE STANDARD ...................................................................................................................... 1

DEFINITIONS ............................................................................................................................................. 4

1. INTRODUCTION ........................................................................................................................... 10

1.5 A CONCEPTUAL FRAMEWORK APPROACH TO INDEPENDENCE 10

2. FRAMEWORK FOR ASSESSING INDEPENDENCE ............................................................................ 12

2.27 Threats to Independence 16 2.33 Safeguards 18 2.42 Guidance for Sole Proprietors and Small Firms 21

3. ENGAGEMENT PERIOD ................................................................................................................. 24

3.4 Reporting Issuers 25

4. APPLICATION OF FRAMEWORK IN SPECIFIC SITUATIONS – AUDIT OR REVIEW ENGAGEMENTS ... 27

4.1 INTRODUCTION — AUDIT AND REVIEW ENGAGEMENTS 28 4.2 FINANCIAL INTERESTS 28 4.18 LOANS AND GUARANTEES 33 4.25 BUSINESS RELATIONSHIPS 34 4.28 FAMILY AND PERSONAL RELATIONSHIPS 35 4.35 EMPLOYMENT WITH AUDIT OR REVIEW CLIENTS 38 4.40 AUDIT AND REVIEW CLIENTS OF PUBLIC INTEREST ENTITIES 39 4.43 TEMPORARY PERSONNEL ASSIGNMENTS 40 4.44 RECENT SERVICE WITH AN AUDIT OR REVIEW CLIENT 40 4.47 SERVING AS AN OFFICER OR DIRECTOR ON THE BOARD OF AN AUDIT OR REVIEW CLIENT 41 4.50 LONG ASSOCIATION OF SENIOR PERSONNEL (INCLUDING PARTNER ROTATION) 42 4.55 PROVISION OF NON-ASSURANCE SERVICES TO AN AUDIT OR REVIEW CLIENT 43

4.61 Management Responsibilities 45 4.66 Preparing Accounting Records and Financial Statements 46 4.73 Emergency Situations 47 4.74 Valuation Services 48 4.80 Taxation Services 49 4.94 Internal Audit Services 54 4.102 IT Systems Services 56 4.107 Litigation Support Services 57 4.109 Legal Services 58 4.114 Recruiting Services 59 4.116 Corporate Finance Services 59

4.120 FEES 61 4.124 COMPENSATION AND EVALUATION POLICIES 63 4.126 GIFTS AND HOSPITALITY 63 4.127 ACTUAL OR THREATENED LITIGATION 63

5. RESTRICTED USE REPORTS ........................................................................................................... 65

6. EFFECTIVE DATE — AUDIT OR REVIEW ENGAGEMENTS ............................................................... 68


Version 2.0 March 2010 Page 2

7. APPLICATION OF FRAMEWORK IN SPECIFIC SITUATIONS – OTHER ASSURANCE .......................... 69

7.1 INTRODUCTION — OTHER ASSURANCE ENGAGEMENTS 70 7.3 FINANCIAL INTERESTS 70 7.12 LOANS AND GUARANTEES 72 7.19 BUSINESS RELATIONSHIPS 74 7.22 FAMILY AND PERSONAL RELATIONSHIPS 75 7.29 EMPLOYMENT WITH OTHER ASSURANCE CLIENTS 78 7.33 RECENT SERVICE WITH AN ASSURANCE CLIENT 79 7.36 SERVING AS A DIRECTOR OR OFFICER OR DIRECTOR OF AN OTHER ASSURANCE CLIENT 80 7.4 LONG ASSOCIATION OF SENIOR PERSONNEL (INCLUDING PARTNER ROTATION) 80 7.41 PROVISION OF NON-ASSURANCE SERVICES TO AN OTHER ASSURANCE CLIENT 81

7.44 Management Responsibilities 81 7.49 Other Considerations 82

7.52 FEES 83 7.55 GIFTS AND HOSPITALITY 84 7.56 ACTUAL OR THREATENED LITIGATION 84

8. EFFECTIVE DATE – OTHER ASSURANCE ENGAGEMENTS ............................................................... 85


Version 2.0 November 2010 Page 4

Definitions

“Assurance client”

The responsible party in respect of which a firm conducts an assurance engagement.

Where the assurance client is a public interest entity, the assurance client will always

include its related entities.

“Assurance engagement”

An engagement defined by the recommendations and generally accepted standards for

assurance engagements contained in the CICA Handbook — Assurance. Where, pursuant

to an accountability relationship between two or more parties, a practitioner is engaged

to issue a written communication expressing a conclusion concerning a subject matter

for which the accountable party is responsible.

“Assurance team”

a) All members of the engagement team for the assurance engagement;

b) All others within a firm who can directly influence the outcome of the assurance

engagement, including:

i) Those who recommend the compensation of, or who provide direct

supervisory, management or other oversight of the assurance engagement

partner in connection with the performance of the assurance engagement,

including for the purposes of an audit engagement those at all successively

senior levels above the lead engagement partner through to the firm’s chief

executive;

ii) Those who provide consultation regarding technical or industry-specific issues,

transactions or events for the assurance engagement;

iii) Those who provide quality control for the assurance engagement, including

those who perform the engagement quality control review.

c) For the purpose of an audit client, all those within a network firm who can directly

influence the outcome of an audit engagement.

“Audit client”

An entity in respect of which a firm conducts an audit engagement. When the audit

client is a public interest entity, the audit client will always include its related entities.

“Audit engagement”

An assurance engagement as defined by the recommendations of standards for audit

engagements as contained in the CICA Handbook — Assurance, where there is an

accumulation and evaluation of evidence about information to determine and report on

the degree of correspondence between the information and established criteria.



“Audit team”

a) All members of the engagement team for the audit engagement;

b) All others within a firm who can directly influence the outcome of the audit

engagement including:

i) Those who recommend the compensation of, or who provide direct

supervisory, management or other oversight of the engagement partner in

connection with the performance of the audit engagement, including those at

all successively senior levels above the engagement partner through the firm’s

chief executive;

ii) Those who provide consultation regarding technical or industry-specific issues,

transactions or events of the engagement; and

iii) Those who provide quality control for the engagement, including those who

perform the engagement quality control review for the engagement; and

c) All those within a network firm who can directly influence the outcome of the audit

engagement.

“Close family”

A parent, non-dependent child or sibling.

“Clearly insignificant”

A matter that is deemed to be both trivial and inconsequential.

“Direct financial interest”

A financial interest that is:

a) owned directly by and under the control of an individual or entity (including those

managed on a discretionary basis by others);

b) beneficially owned through a collective investment vehicle, estate, trust or other

intermediary over which the individual or entity has control; or

c) owned through an investment club or private mutual fund in which the individual

participates in the investment decisions.

“Engagement Quality Control Review”

A process designed to provide an objective evaluation, in accordance with the general

standards of quality control for firms performing assurance engagements contained in

the CICA Handbook — Assurance, of the significant judgements the engagement team

made and the conclusions reached in formulating the report.

“Engagement team”

All personnel performing the engagement and any individuals contracted by the firm

who provide services on the engagement that might otherwise be provided by

personnel of the firm.

“Financial interest”

An interest in equity or other security, debenture, loan, or other debt instrument of an

entity, including rights and obligations to acquire such an interest and derivatives

directly related to such interest.



“Firm”

a) A sole practitioner, partnership, limited liability partnership, professional

corporation, or a corporation engaged in the practice of public accounting;

b) An entity that controls such parties through ownership, management or other

means; and

c) An entity controlled by such parties through ownership, management or other

means.

“Fund manager”

With respect to a mutual fund, an entity that is responsible for investing the mutual

fund’s assets, managing its portfolio trading, and providing it with administrative and

other services, pursuant to a management contract.

“Immediate family”

A spouse (or equivalent) or dependent.

“Indirect financial interest”

A financial interest beneficially owned through a collective investment vehicle, estate,

trust or other intermediary over which the individual or entity has no control.

“Key audit or review partner”

The engagement partner, the individual responsible for the engagement quality control

review, and other audit or review partners on the engagement team (such as lead

partners on significant subsidiaries or divisions), who are responsible for key decisions

or judgements on significant matters with respect to the audit or review of the financial

statements on which the firm will express an opinion.

“Member”

An individual who holds a Certified General Accountant designation and is in good

standing. Where applicable, the term includes duly registered CGA students.

“Mutual fund”

A mutual fund that is a reporting issuer under the applicable Canadian provincial or

territorial securities legislation.

“Network firm”1

A firm or entity that belongs to a network.

“Network”2

A larger structure:

a) that is aimed at cooperation; and

b) that is clearly aimed at profit or cost sharing or shares common ownership, control

or management, common quality control policies and procedures, common business

strategy, the use of a common brand-name, or a significant part of professional

resources.

1 See page 21 for further explanatory requirements for networks and network firms.



“Office”

A distinct sub-group, whether organized on geographical or practice lines.

“Other assurance engagement”

An assurance engagement is defined by the recommendations and generally accepted

standards for assurance engagements contained in the CICA Handbook — Assurance,

where, pursuant to an accountability relationship between two or more parties, a

practitioner is engaged to issue a written communication expressing a conclusion

concerning a subject matter for which the accountable party is responsible. An other

assurance engagement excludes those engagements where the primary purpose is to

provide an audit or review engagement report of a set of financial statements.

“Professional colleague”

An accountant recognized by statutory authority.

“Public interest entity”

Public interest entities are defined to include:

a) All reporting issuers; and

b) Entities that, due to the large number and wide range of stakeholders, size and

number of employees, and nature or fiduciary capacity, reflect a broad extent of

public interest (for example, private for-profit enterprises, co-operative business

enterprises, not-for-profit organizations, and governments and other entities in the

public sector).

“Related entity”

An entity that has any of the following relationships with the client:

a) direct or indirect control over the client provided the client is material to such

entity;

b) a direct financial interest in the client provided such entity has significant influence

over the client and the interest in the client is material to such entity;

c) the client has direct or indirect control over the entity;

d) an entity in which the client, or a related entity as described in c), has a direct

financial interest that gives it significant influence over such entity and the interest

is material to the client and its related entity as described in c); or

e) an entity that is under common control with the client (hereinafter a “sister entity”)

provided the sister entity and the client are both material to the entity that controls

both the client and sister entity.

In the case of a reporting issuer that is a mutual fund, the term “related entity” is limited

to any entity that is:

• the fund manager of the mutual fund; and

• another mutual fund that has the same fund manager as the mutual fund and that

is audited by the same firm or a network firm.



“Reporting issuer”

An entity that is deemed to be a reporting issuer under the applicable Canadian

provincial or territorial securities legislation, other than an entity that has, in respect of

a particular fiscal year, a market capitalization or total assets that are each less than

$10,000,000. An entity that becomes a reporting issuer by virtue of the market

capitalization or total assets becoming $10,000,000 or more in respect of a particular

fiscal year will be considered to be a reporting issuer thence forward unless and until

the entity ceases to have its shares, units or debt quoted, listed or marketed in

connection with a recognized stock exchange or the entity has remained under the

market capitalization threshold for a period of two years.

In the case of a period in which an entity makes a public offering:

a) the term “market capitalization” shall be read as referring to the market price of all

outstanding listed securities and publicly traded debt measured during the closing

price on the day of the public offering; and

b) the term “total assets” shall be read as referring to the amount of total assets

presented on the most recent financial statements prepared in accordance with

generally accepted accounting principles included in the public offering document.

In the case of a reporting issuer that does not have listed securities or publicly

traded debt, the definition of reporting issuer shall be read without reference to market

capitalization.

“Review client”

An entity in respect of which a firm conducts a review engagement.

“Review engagement”

An assurance engagement defined by the recommendations and generally accepted

standards for review engagements of the CICA Handbook — Assurance where there is

enquiry, analytical procedures, and discussion relating to information supplied by the

review client with the limited objective of assessing whether the information being

reported on is plausible within the framework of appropriate criteria.

“Review team”

a) All members of the engagement team for the review engagement; and

b) All others within a firm who can directly influence the outcome of the review

engagement, including:

i) those who recommend the compensation of, or who provide direct

supervisory, management or other oversight of the engagement partner in

connection with the performance of the review engagement including those at

all successively senior levels above the engagement partner through to the

individual who is the firm’s senior or managing partner (chief executive officer

or equivalent);

ii) those who provide consultation regarding technical or industry specific issues,

transactions or events for the engagement; and

iii) those who provide quality control for the engagement, including those who

perform the engagement quality control review for the engagement; and

c) All those within a network firm who can directly influence the outcome of the

review engagement.



“Those charged with governance”

The persons with responsibility for overseeing the strategic direction of the entity

and obligations related to the accountability of the entity. This includes overseeing the

financial reporting process.



1. INTRODUCTION

1.1 It is in the public interest that members, engagement teams, and firms be independent

of assurance clients. This independence is necessary in order to provide a reasonable

level of assurance that any engagement conducted and subsequent report issued is

grounded on professional judgement that is free of conflict of interest or bias.

1.2 This requirement for independence in assurance and specified auditing procedures

engagements is formally set out in the CGA-Canada Code of Ethical Principles and Rules

of Conduct (CEPROC) “Trust and Duties” and rule R202, of which this Standard forms an

integral component. Rule R202.1 requires that a member shall be free of any influence,

interest or relationship in respect of the client’s affairs which impairs the member's

professional judgement or objectivity, or which, in the view of a reasonable observer

may have that effect.

Paragraph (a) of rule R202.1 prohibits a member from issuing a communication in

assurance or specified auditing procedures engagements unless the member has

considered and either reduced to an acceptable level or eliminated any threats to the

member’s independence.

This requirement creates an ongoing obligation for members, engagement teams, and

firms to identify and evaluate circumstances and relationships that create threats to

independence and to take appropriate action to eliminate these threats or reduce them

to an acceptable level by the application of safeguards. Furthermore, paragraph (c) of

rule R202.1 obligates a member to ensure that personnel of the firm are in compliance

with these independence requirements.

1.3 This Standard provides members, engagement teams, and firms with a conceptual

framework for identifying, evaluating, and responding to threats to independence.

1.4 This Standard makes use of the conceptual framework contained in the International

Federation of Accountants Code of Ethics for Professional Accountants.

1.5 A Conceptual Framework Approach to Independence

1.5 Independence requires:

a) Independence of mind:

The state of mind that permits the expression of a conclusion without being affected by

influences that compromise professional judgement, thereby allowing an individual to

act with integrity and exercise objectivity and professional scepticism; and

b) Independence in appearance:

The avoidance of facts and circumstances that are so significant that a reasonable and

informed third party would be likely to conclude, weighing all the specific facts and

circumstances, that a firm’s or a member of the engagement team’s integrity, objectivity

or professional scepticism had been compromised.



1.6 In the context of this Standard, the word “independence” should not be construed to

mean that a person exercising professional judgement ought to be free from all

economic, financial, and other relationships. This is impossible, as every member of

society has relationships with others. Rather, it requires that the significance of

economic, financial, and other relationships be evaluated in the light of what a

reasonable and informed third party, weighing all the specific facts and circumstances

available to the member at the time, would be likely to conclude that the threats would

be eliminated or reduced to an acceptable level by the application of the safeguards,

such that compliance with the fundamental principles is not compromised.

1.7 Many different circumstances, or combinations of circumstances, may be relevant in

assessing threats to independence. It is impossible to define every situation that creates

threats to independence and specify the appropriate action. Therefore, the CGA

Independence Standard provides a conceptual framework approach that assists

members in practice in complying with the ethical requirements of both the Code of

Ethical Principles and Rules of Conduct and the CGA Independence Standard. It

accommodates many variations in circumstances that create threats to independence

and can deter a member from concluding a situation is permitted if it is not specifically

prohibited.



2. Framework for Assessing Independence

2.1 In accordance with CEPROC rule R202.1, this Standard provides a framework that

members, engagement teams, and firms must use to:

a) identify threats to independence;

b) evaluate whether these threats, considered individually and collectively, are clearly

insignificant; and

c) in cases where the threats are not clearly insignificant, identify and apply safeguards

to eliminate or reduce the threats to an acceptable level, such that independence of

mind and independence in appearance are not compromised.

2.2 In cases where no safeguards are available to reduce the threat to an acceptable level,

the only possible actions are to eliminate the activities or interest creating the threat, or

to decline to accept or continue the assurance engagement. It is not possible to identify

all such cases. However, there are specific circumstances identified in this Standard that

result in such a case. Those identified are denoted by italics and constitute a specified

prohibition which must be complied with in accordance with CEPROC rule R202.1 (b).

2.3 In accordance with R202.1, members, engagement teams, and firms are obligated to

identify and evaluate circumstances and relationships that create threats to

independence. This obligation includes identifying and evaluating relationships between

the member, engagement team, firm and network firms and the assurance client. In

addition, consideration should be given as to whether relationships between individuals

outside of the assurance team and the assurance client create threats to independence.

Consideration of Type of Engagement

2.4 This Standard applies to all assurance and specified auditing procedures engagements.

The nature of the threats to independence and the applicable safeguards necessary to

eliminate the threats or reduce them to an acceptable level will differ depending on the

characteristics of the individual engagement. Therefore, the evaluation of relevant

circumstances must include consideration of whether the assurance engagement is an

audit or review engagement or another type of engagement, and in the case of an

assurance engagement that is not an audit or review engagement, the purpose, subject

matter, and intended users of the report issued as a result of that engagement.

2.5 At a minimum, it will be necessary to apply the provisions of this Standard when

evaluating the independence of the member of the engagement team, the firm, and

their immediate family and close relatives. Further, if the member, engagement team, or

firm has a material financial interest in the client, whether direct or indirect, the self-

interest threat would be so significant no safeguard could reduce that threat to an

acceptable level. Limited consideration of any threats created by network firm interests

and relationships may be sufficient.

Audit and Review Engagements

2.6 Paragraphs 2.27 to 2.32 of this Standard identify threats to independence. Paragraphs

2.33 to 2.41 analyze the safeguards capable of eliminating these threats or reducing

them to an acceptable level. The threats and safeguards in this Standard are generally



discussed in the context of interests or relationships between the member, engagement

team, or firm and the audit or review client. In certain cases, the interest and

relationships should be extended as follows:

a) where a client is a public interest entity, the member, engagement team or firm is

required to further consider the interests and relationships that involve the client’s

related entities and specific prohibitions are extended to the related entities; and

b) in the case of an audit or review client, the prohibitions with respect to financial

interests are extended to related entities of the client.

For interests and relationships that require consideration, independence assessment

should be completed in advance of accepting an engagement. The evaluation of threats

to independence, subsequent safeguards, and whether a particular individual person

will be a member of the engagement team should be supported by evidence obtained

before deciding whether it is appropriate to accept an engagement.

Other Assurance Engagements

2.7 For assurance engagements where the client is not an audit or review client and the

engagement is not expressly restricted for use by identified users, the member,

assurance team and firm are required to be independent of the client. In addition, in the

case of these engagements, consideration should be given to any threats that the

member or firm has reason to believe may be created by network firm interests and

relationships.

2.8 For assurance engagements where the client is not an audit or review client and the

engagement is expressly restricted for use by identified users, the users are considered

to be knowledgeable as to the purpose, subject matter, and limitations of that report

through their participation in establishing the nature and scope of the member’s or

firm’s instructions to deliver the services, including the criteria by which the subject

matter is to be evaluated. This knowledge and enhanced ability of the member or firm

to communicate with all users of the report increases the effectiveness of safeguards to

independence in appearance. These circumstances may be taken into account by the

member or firm in evaluating the threats to independence and considering the

applicable safeguards necessary to eliminate threats or reduce them to an acceptable

level.

2.9 Paragraphs 2.27 to 2.32 of this Standard identify threats to independence. Paragraphs

2.33 to 2.41 analyze the safeguards capable of eliminating these threats or reducing

them to an acceptable level. The threats and safeguards in this Standard are generally

discussed in the context of interests or relationships between the member, engagement

team, or firm and the audit or review client. In certain cases, the interest and

relationships should be extended as follows:

a) for all other assurance clients, when the assurance team has reason to believe that a

related entity of such an assurance client is relevant to the evaluation of the

member’s or firm’s independence, the member or the assurance team should

consider that related entity when evaluating independence and applying appropriate

safeguards.



Related Entities

Audit or Review Clients that are Listed Public Interest Entities

2.10 In the case of an audit or review client that is a reporting issuer, references to a client in

this section include related entities of the client (unless otherwise stated). For all other

audit or review clients, references to a client in this section include related entities over

which the client has direct or indirect control. When the engagement team knows or

has reason to believe that a relationship or circumstance involving another related

entity of the client is relevant to the evaluation of the firm’s independence from the

client, the engagement team shall include that related entity when identifying and

evaluating threats to independence and applying appropriate safeguards.

Audit or Review Clients that are Non-listed Public Interest Entities

2.11 In the case of non-listed public interest entities, references to an audit or review client

will, unless otherwise stated, generally include its related entities; in certain

circumstances, depending on the nature and structure of the client’s organization, it

may not be necessary to apply the enhanced safeguards referred to above to all related

entities to maintain independence from the client. This might be the case, for example,

in the audit of a government-controlled entity.

2.12 In the case of an audit or review engagement when the conditions set out in paragraphs

5.1 to 5.4 are met, it is not necessary to apply the additional requirements in paragraphs

4.2 to 4.127 that apply to engagements for public interest entities.

2.13 In the case of an engagement when the conditions set out in paragraphs 5.1 to 5.4 are

met, references to an audit or review client do not include its related entities. However,

when the engagement team knows or has reason to believe that a related entity of the

client is relevant to the evaluation of the firm’s independence of the client, the

engagement team shall consider that related entity when evaluating threats to

independence and applying appropriate safeguards.

Networks and Network Firms


met, reference to the firm does not include network firms. However, where the firm

knows or has reason to believe that threats may be created by any interests and

relationships of a network firm, they shall be considered in the evaluation of threats to

independence.

Financial Interests, Loans and Guarantees, Close Business Relationships, and Family and

Personal Relationships


met, the relevant provisions set out in paragraphs 4.2 to 4.46 apply to all members of

the engagement team, their immediate family members and close family members.

2.16 In addition, consideration shall be given to whether threats to independence are created

by interests and relationships, as described in paragraphs 4.2 to 4.46, between the audit

or review client and the following members of the engagement team:



a) those who provide consultation regarding technical or industry-specific issues,

transactions or events; and

b) those who provide quality control for the engagement, including those who perform

the engagement quality control review.

2.17 Consideration shall also be given to any threats that the engagement team has reason to

believe may be created by interests and relationships between the audit or review client

and others within the firm who can directly influence the outcome of the engagement,

including those who recommend the compensation of, or who provide direct

supervisory, management or other oversight of the engagement partner in connection

with the performance of the audit or review engagement (including those at all

successively senior levels above the engagement partner through to the individual who

is the firm’s Senior or Managing Partner (Chief Executive or equivalent)).

2.18 Consideration shall also be given to any threats that the engagement team has reason to

believe may be created by financial interests in the audit or review client held by

individuals, as described in paragraphs 4.8 to 4.10 and paragraphs 4.13 to 4.15.

Where a threat to independence that is not clearly insignificant is identified, safeguards

shall be considered and applied when necessary to eliminate the threat or reduce it to

an acceptable level.

2.19 In applying the provisions set out in paragraphs 4.6 to 4.15 to interests of the firm, if the

firm had a material financial interest, whether direct or indirect, in the audit or review

client, the self-interest threat would be so significant that no safeguard could reduce the

threat to an acceptable level. Therefore, the firm shall not have such a financial interest.

Employment with an Audit or Review Client

2.20 Consideration shall also be given to threats from any employment relationships as

described in paragraphs 4.35 to 4.39. Where a threat exists that is not clearly

insignificant, safeguards shall be considered and applied when necessary to eliminate

the threat or reduce it to an acceptable level. Appropriate safeguards might include

those set out in paragraph 4.37.

Provision of Non-Assurance Services to Audit or Review Clients

2.21 If the firm provides a non-assurance service to an audit or review client, the provisions

of paragraphs 4.55 to 4.127 shall be complied with, subject to paragraphs 5.5 to 5.8.

Other Considerations

2.22 The evaluation should be ongoing while the engagement is being performed to

determine if the engagement should be continued. The obligation to make such an

evaluation and take action arises when a member, engagement team, firm or network

firm knows, or could reasonably be expected to know, of circumstances or relationships

that might compromise independence.



2.23 There may be occasions when the member, engagement team, or the firm inadvertently

violates the obligation to make such an evaluation. If such an inadvertent violation

occurs, it generally does not compromise independence with respect to an assurance

client, provided the member or firm has appropriate policies and procedures in place to

promote independence, and once discovered, the violation is corrected promptly and

any necessary safeguards applied.

2.24 In accordance with CEPROC rule R202.1(d), when threats to independence that are not

insignificant are identified, and the member or firm decides to accept or continue the

engagement, the decision must be documented. The documentation must include a

description of the threats identified and the safeguards applied to eliminate or reduce

the threats to an acceptable level.

2.25 Throughout this Standard, reference is made to significant or insignificant threats in the

evaluation of independence. In considering the significance of any particular matter,

qualitative as well as quantitative factors must be taken into account. A matter may be

considered insignificant only if it is deemed to be both trivial and inconsequential.

2.26 This Standard concludes with examples of how the conceptual framework approach to

independence is applied to specific circumstances and relationships that may create

threats to independence, and considers how these threats can be eliminated or reduced

to an acceptable level by the application of safeguards. In certain examples, the threats

to independence are so significant the only possible actions are to eliminate the threat

or decline to accept or continue the assurance engagement. The examples presented

are intended to illustrate the application of this Standard but are not intended to be, nor

should they be interpreted as, an exhaustive list of all circumstances that may create

threats to independence. Consequently, it is not sufficient for a member engagement

team, firm or network firm to comply with these examples; rather, professional

judgement must be used in applying this Standard to identify, evaluate, and eliminate or

reduce to an acceptable level threats to independence.

2.27 Threats to Independence

2.27 Independence is potentially affected by self-interest, self-review, advocacy, familiarity,

and intimidation threats.

2.28 A self-interest threat occurs when a financial or other interest will inappropriately

influence the member of the engagement team’s, firm’s or network firm’s judgement or

behaviour.

Examples of circumstances that may create this threat include:

a) a direct financial interest in a client;

b) undue dependence on total fees from a client;

c) a significant close business relationship with a client;

d) being concerned about the possibility of losing a significant client;

e) entering into employment negotiations with a client; and

f) discovering a significant error when evaluating the results of a previous professional

service performed by a member’s firm.



2.29 A self-review threat occurs when a member will not appropriately evaluate the results of

a previous judgement made or service performed by the member, or by another

individual within the firm or employing organization, on which the member will rely

when forming a judgement as part of providing a current service. Examples of

circumstances that may create this threat include:

a) a firm issuing an engagement report on the effectiveness of the operation of financial

systems after designing or implementing the systems;

b) a firm having prepared the original data used to generate records that are the subject

matter of an engagement;

c) a member or member of the engagement team being, or having recently been, a

director or officer of the client;

d) a member or member of the engagement team being, or having recently been,

employed by the client in a position to exert significant influence over the subject

matter of the engagement, and performing a service for a client that directly affects

the subject matter information of the engagement.

2.30 An advocacy threat occurs when a member promotes a client’s or employer’s position to

the point that the member’s objectivity is compromised. Examples of circumstances that

may create this threat include:

a) promoting shares in a client; and

b) acting as an advocate on behalf of a client in litigation or disputes with third parties.

2.31 A familiarity threat occurs when, due to a long or close relationship with a client or

employer, a member will be too sympathetic to their interests or too accepting of their

work.


a) a member of the engagement team having a close or immediate family member who

is a director or an officer of the client;

b) a member of the engagement team having a close or immediate family member who,

as an employee of the client, is in a position to exert direct and significant influence

over the subject matter of the assurance engagement;

c) a director or officer of the client or an employee in a position to exert significant

influence over the subject matter of the engagement having recently been a partner

of the firm; and

d) accepting gifts or preferential treatment from a client, unless the value is trivial or

inconsequential.

2.32 An intimidation threat occurs when a member will be deterred from acting objectively

because of actual or perceived pressures, including attempts to exercise undue

influence over the member.


a) a firm being threatened with dismissal from a client engagement;

b) a client indicating that it will not award a planned non-assurance contract to the firm

if the firm continues to disagree with the client’s accounting treatment for a

particular transaction;

c) a firm being threatened with litigation by the client;



d) a firm being pressured to reduce inappropriately the extent of work performed in

order to reduce fees;

e) a member feeling pressured to agree with the judgement of a client employee

because the employee has more expertise on a matter in question; and

f) a member being informed by a partner of the firm that a planned promotion will not

occur unless the member agrees with a client’s inappropriate accounting treatment.

2.33 Safeguards

2.33 When threats that are more than clearly insignificant are identified, appropriate

safeguards must be identified to eliminate the threats or reduce them to an acceptable

level. The nature of the safeguards to be applied will vary depending on the

circumstances of a particular engagement. Consideration must always be given to what

a reasonable and informed third party having knowledge of all of the relevant

information, including safeguards, would reasonably conclude to be unacceptable. Such

consideration will be affected by matters such as the significance of the threat, the

nature of the assurance engagement, the intended users of the report, and the structure

of the firm.

2.34 Safeguards fall into two broad categories:

a) those created by the profession, legislation or regulation; and

b) those in the work environment.

2.35 Safeguards created by the profession, legislation or regulation include the following:

a) educational, training, and experience requirements for both entry into the profession

and the provision of public accounting services;

b) continuing professional development requirements;

c) professional standards and monitoring and disciplinary processes;

d) external practice reviews;

e) legislation governing the independence requirements of the firm, members, and

other professional colleagues; and

f) participation by members of the public in the governance of the profession.

2.36 Safeguards within the assurance client may include the following:

a) the client has competent employees to make managerial decisions;

b) policies and procedures that emphasize the client’s commitment to fair financial

reporting;

c) internal procedures that ensure objective choices in commissioning non-assurance

engagements; and



d) an audit committee consisting those charged with governance that provides

appropriate oversight and communications regarding a firm’s service.

2.37 Safeguards within the firm’s own systems and procedures may include firm-wide

safeguards such as the following:

a) firm leadership that stresses the importance of independence and the expectation

that members and members of engagement teams will act in the public interest;

b) policies and procedures to implement and monitor quality control of engagements;

c) documented independence policies regarding the identification of threats to

independence, the evaluation of the significance of these threats, and the

identification and application of safeguards to eliminate or reduce the threats, other

than those that are clearly insignificant, to an acceptable level;

d) internal policies and procedures to monitor compliance with firm policies and

procedures as they relate to independence;

e) policies and procedures that will enable the identification of interests or relationships

between the member, engagement team, or firm and clients;

f) policies and procedures to monitor and, if necessary, manage the reliance on

revenue received from a single client;

g) using different partners and engagement teams with separate reporting lines for the

provision of non-assurance services to a client;

h) policies and procedures to prohibit individuals who are not members of the

engagement team from influencing the outcome of the engagement;

i) timely communication of a member's or firm’s policies and procedures, and any

changes thereto, to all members of the engagement team, including appropriate

training and education;

j) designating a member of senior management to be responsible for overseeing the

adequate functioning of the safeguarding system;

k) means of advising members of the firm and members of the engagement team of

those clients and related entities from which they must be independent;

l) a disciplinary mechanism within the firm to promote compliance with policies and

procedures; and

m) policies and procedures to empower members of the engagement team to

communicate to senior levels within the firm any issues of independence and

objectivity that concern them; this includes informing the engagement team of the

procedures open to them.



2.38 Safeguards within the firm’s own systems and procedures may include engagement-

specific safeguards such as the following:

a) having a professional colleague review the work or otherwise advise as necessary;

this could include someone from outside the firm or someone from within the firm

who was not otherwise associated with the engagement team;

b) consulting a third party, such as a committee of independent directors, a professional

regulatory body, including a member advisor of an affiliate or another professional

colleague;

c) rotating senior individuals from an engagement team;

d) discussing independence issues with members of the audit committee or, in the

absence of an audit committee, those charged with governance;

e) disclosing the nature of services provided and extent of fees charged to the audit

committee, or in the absence of an audit committee, those charged with governance;

f) having policies and procedures to ensure members of the engagement team do not

make, or assume responsibility for, management decisions for the assurance client;

g) involving another firm to perform or re-perform part of the engagement;

h) involving another firm to re-perform the non-assurance service to the extent

necessary that will enable it to take responsibility for that service; and

i) removing an individual from the engagement team, when that individual’s financial

interests or relationships create a threat to independence.

2.39 Audit committees assume an important corporate governance role when they operate

independently of client management and are able to assist the Board of Directors in

satisfying them that a member or firm is independent in carrying out its audit role. There

should be regular communications between the member or firm and the audit

committee, or if there is no audit committee, those charged with governance, regarding

relationships and other matters that might, in the member's or firm's opinion,

reasonably be thought to bear on independence.

2.40 Requirements are set out for communication to those charged with governance in the

CICA Handbook — Assurance. Members and firms are required to establish policies and

procedures relating to regular independence communications with audit committees, or

if there is no audit committee, those charged with governance. For audit engagements,

the member or firm must communicate orally and in writing at least annually regarding

all relationships and other matters between the member, firm or network firm, and the

audit client that, in the professional judgement of the member of the engagement team

involved, may reasonably be thought to affect independence. Matters to be

communicated will vary with the circumstances of the engagement; however, the

communication should generally address the relevant independence matters set out in

this Standard.



2.41 When the safeguards available, such as those described in the preceding paragraphs, are

insufficient to eliminate the threats to independence or to reduce them to an acceptable

level, or when a member or firm chooses not to eliminate the activities or interests

creating the threat, the only course of action available will be the refusal to perform, or

withdrawal from, the assurance engagement.

2.42 Guidance for Sole Proprietors and Small Firms

2.42 Small firms and sole proprietors have clients that are mainly owner-managed or small-

sized enterprises. Many of the safeguards normally available within the firm or the client

would not be available.

2.43 Often these practitioners are relied on by owner-managed and small-sized enterprise

clients to provide them with a broad range of accounting and business services. In these

circumstances, independence will not be impaired provided safeguards are applied as

required to eliminate or reduce any threat to an acceptable level and the services

provided are not specifically prohibited by this Standard. For example, an appropriate

safeguard might include explaining to the client the intention behind providing certain

services and then obtaining the client’s approval for the end result.

2.44 Small and medium-sized enterprise clients will often enjoy a long-standing personal

relationship with a sole proprietor or small firm. In that situation, independence will not

be impaired provided safeguards are applied to reduce any familiarity threat that may

result from that relationship to an acceptable level. In most circumstances, the

mandatory external practice review and, where appropriate, consultation with a third

party such as a member advisor of an Affiliate or a professional colleague from outside

the firm will reduce any potential threats to independence to an acceptable level.

2.45 Practitioners will find additional guidance throughout Section 4, Application of

Framework in Specific Situations. In addition to the safeguards identified in paragraphs

2.43 and 2.44, such as paragraphs 4.37, 4.43, and 4.50 discuss issues and provide

safeguards in circumstances that are common to small firms or sole proprietors. Also,

the Guidance Bulletin, Independence for Sole Proprietors and Small Firms, is accessible

through the Public Practice Manual CD or the PPM Online.


2.46 An entity that belongs to a network might be a firm, which is defined as a sole

practitioner, partnership or corporation of professional accountants, and an entity that

controls or is controlled by such parties. Or the entity might be another type of entity,

such as a consulting practice. The independence requirements in this section that apply

to a network firm apply to any entity that meets the definition of a network firm

irrespective of whether the entity itself meets the definition of a firm.

2.47 To enhance their ability to provide professional services, firms frequently form larger

structures with other firms and entities. Whether these larger structures create a

network depends on the particular facts and circumstances and does not depend on

whether the firms and entities are legally separate and distinct. For example, a larger

structure may be aimed only at facilitating the referral of work, which in itself does not

meet the criteria necessary to constitute a network. Alternatively, a larger structure



might be such that it is aimed at co-operation, and the firms share a common brand

name, a common system of quality control, or significant professional resources. A

larger structure of this type is deemed to be a network.

2.48 The judgement as to whether the larger structure is a network shall be made in light of

whether a reasonable and informed third party would be likely to conclude, weighing all

the specific facts and circumstances, that the entities are associated in such a way that a

network exists. The judgement shall be applied consistently throughout the network.

2.49 Where the larger structure is aimed at co-operation, and it is clearly aimed at profit or

cost sharing among the entities within the structure, it is deemed to be a network.

However, the sharing of immaterial costs does not in itself create a network. In

addition, if the sharing of costs is limited only to those costs related to the development

of audit methodologies, manuals, or training courses, this would not in itself create a

network. Further, an association between a firm and an otherwise unrelated entity to

jointly provide a service or develop a product does not in itself create a network.

2.50 Where the larger structure is aimed at cooperation and the entities within the structure

share common ownership, control or management, it is deemed to be a network. This

could be achieved by contract or other means.


share common quality control policies and procedures, it is deemed to be a network.

For this purpose, common quality control policies and procedures are those designed,

implemented, and monitored across the larger structure.


share a common business strategy, it is deemed to be a network. Sharing a common

business strategy involves an agreement by the entities to achieve common strategic

objectives. However, an entity is not deemed to be a network firm merely because it

cooperates with another entity solely to respond to a request for a proposal for the

provision of a professional service.


share the use of a common brand name, it is deemed to be a network. A common

brand name includes common initials or a common name. A firm is deemed to be using

a common brand name if it includes, for example, the common brand name as part of,

or along with, its firm name when a partner of the firm signs an assurance report.

2.54 Even though a firm does not belong to a network and does not use a common brand

name as part of its firm name, it may give the appearance that it belongs to a network if

it makes reference in its stationery or promotional materials to being a member of an

association of firms. Therefore, if care is not taken in how a firm describes such

memberships, a perception may be created that the firm belongs to a network.

2.55 If a firm sells a component of its practice, the sales agreement sometimes provides that,

for a limited period of time, the component may continue to use the name of the firm,

or an element of the name, even though it is no longer connected to the firm. In such

circumstances, while the two entities may be practicing under a common name, the



facts are such that they do not belong to a larger structure aimed at cooperation and

are, therefore, not network firms. Those entities shall determine how to disclose that

they are not network firms when presenting themselves to outside parties.


share a significant part of professional resources, it is deemed to be a network.

Professional resources include:

a) common systems that enable firms to exchange information such as client data,

billing and time records;

b) partners and personnel;

c) technical departments to consult on technical or industry-specific issues, transactions

or events for assurance engagements;

d) audit methodology or audit manuals; and

e) training courses and facilities.

2.57 The determination of whether the professional resources shared are significant, and

therefore the firms are network firms, shall be made based on the relevant facts and

circumstances. Where the shared resources are limited to common audit methodology

or audit manuals, with no exchange of personnel or client or market information, it is

unlikely that the shared resources would be significant. The same applies to a common

training endeavour. Where, however, the shared resources involve the exchange of

people or information, such as where personnel are drawn from a shared pool, or a

common technical department is created within the larger structure to provide

participating firms with technical advice that the firms are required to follow, a

reasonable and informed third party is more likely to conclude that the shared resources

are significant.



3. Engagement Period

3.1 The member, the engagement team, and the firm must be independent of the

assurance client during the period of the engagement. The engagement period starts

when the engagement team begins to perform services and ends when the report is

issued, except when the engagement is of a recurring nature. If the engagement is

expected to recur, the period of the engagement ends with the notification by either

party that the professional relationship has terminated or on the issuance of the final

report, whichever is later. In the case of an audit engagement for a reporting issuer, the

engagement period ends when the audit client, member, or the firm notifies the

relevant Securities Commission that the audit client is no longer an audit client of the

member or the firm.

3.2 In the case of an audit or review engagement, the period of the audit or review

engagement includes the period covered by the financial statements reported on by the

member or the firm. When an entity becomes a client during or after the period covered

by the financial statements that the member or firm will report on, the member or firm

shall determine whether any threats to independence are created by:

a) financial or business relationships with the client during or after the period covered

by the financial statements, but before accepting the engagement; or

b) previous services provided to the client.

Similarly, in the case of an assurance engagement that is not an audit or review

engagement, the member or firm shall determine whether any financial or business

relationships or previous services create threats to independence.

3.3 If non-assurance services were provided to an audit or review client during or after the

period covered by the financial statements but before the commencement of

professional services in connection with the audit or review, and the service would not

be permitted during the period of the engagement, the firm shall evaluate any threat to

independence created by the service. If any threat is not at an acceptable level, the

engagement shall only be accepted if safeguards are applied to eliminate any threats or

reduce them to an acceptable level. Examples of such safeguards include:

a) not including personnel who provided the non-assurance service as members of the

engagement team;

b) having a professional colleague review the audit or review work and non-assurance

work as appropriate; or

c) engaging another firm to evaluate the results of the non-assurance service or having

another firm re-perform the non-assurance service to the extent necessary to enable

it to take responsibility for the service.



3.4 Reporting Issuers

3.4 Non-assurance services provided to an audit client that is not a reporting issuer will not

impair the member’s or firm’s independence when the client becomes a reporting issuer

provided:

a) the previous non-assurance services were permissible under this Standard for audit

clients that were not reporting issuers;

b) the services will be terminated within a reasonable period of time of the client

becoming a reporting issuer, if the services are not permissible under this Standard

for reporting issuer audit clients; or

c) the member or the firm has implemented appropriate safeguards to eliminate, or

reduce to an acceptable level, any threats to independence arising from the previous

services.

3.5 For the purposes of complying with the specified prohibitions related to reporting

issuers in this Standard, an entity becomes a reporting issuer by virtue of having market

capitalization or total assets in excess of $10,000,000. In the case of a period in which an

entity makes a public offering, market capitalization is measured at the closing price on

the day of the public offering, and “total assets” refers to the total assets presented on

the most recent financial statements, prepared in accordance with Canadian generally

accepted accounting principles, that are included in the offering document.

3.6 When an entity becomes a reporting issuer by virtue of a public offering, the auditor of

the entity is required, from that period forward until the entity ceases to be a reporting

issuer, to comply with the specified prohibitions for reporting issuers in this Standard.

Certified General Accountants Association of Alberta Independence Standard

Version 2.0 November 2010 Independence Standard Page 27

4. Application of Framework in Specific Situations – Audit or Review

Engagements

Index

4.2 FINANCIAL INTERESTS .................................................................................................................. 28

4.18 LOANS AND GUARANTEES 33

4.25 BUSINESS RELATIONSHIPS 34

4.28 FAMILY AND PERSONAL RELATIONSHIPS 35

4.35 EMPLOYMENT WITH AUDIT OR REVIEW CLIENTS 38

4.40 AUDIT AND REVIEW CLIENTS OF PUBLIC INTEREST ENTITIES 39

4.43 TEMPORARY PERSONNEL ASSIGNMENTS 40

4.44 RECENT SERVICE WITH AN AUDIT OR REVIEW CLIENT 40

4.47 SERVING AS AN OFFICER OR DIRECTOR ON THE BOARD OF AN AUDIT OR REVIEW CLIENT 41

4.50 LONG ASSOCIATION OF SENIOR PERSONNEL (INCLUDING PARTNER ROTATION) 42

4.55 PROVISION OF NON-ASSURANCE SERVICES TO AN AUDIT OR REVIEW CLIENT 43

4.61 Management Responsibilities 45

4.66 Preparing Accounting Records and Financial Statements 46

4.73 Emergency Situations 47

4.74 Valuation Services 48

4.80 Taxation Services 49

4.94 Internal Audit Services 54

4.102 IT Systems Services 56

4.107 Litigation Support Services 57

4.109 Legal Services 58

4.114 Recruiting Services 59

4.116 Corporate Finance Services 59

4.120 FEES 61

4.124 COMPENSATION AND EVALUATION POLICIES 63

4.126 GIFTS AND HOSPITALITY 63

4.127 ACTUAL OR THREATENED LITIGATION 63

In accordance with Code of Ethical Principles and Rules of Conduct rule R202.1 (b), a member is required to comply with the specified prohibitions denoted by italics in this Standard.



4. APPLICATION OF FRAMEWORK IN SPECIFIC SITUATIONS – AUDIT OR

REVIEW ENGAGEMENTS

4.1 Introduction — Audit and Review Engagements

4.1 The following examples describe the specific circumstances and relationships that may

create threats to independence. The examples describe the potential threats and the

safeguards that may be appropriate to eliminate the threats or reduce them to an

acceptable level in each circumstance. The examples are not all-inclusive. In practice,

the firm and member of the engagement team will be required to assess the

implications of similar, but different, circumstances and relationships and to determine

whether safeguards, including the safeguards in paragraphs 2.33 through 2.41, can be

applied to satisfactorily address threats to independence.

4.2 Financial Interests

4.2 Holding a financial interest in an audit or review client may create a self-interest threat.

The existence and significance of any threat created depends on:

a) the role of the individual holding the financial interest;

b) whether the financial interest is direct or indirect; and

c) the materiality of the financial interest.

4.3 Financial interests may be held through an intermediary (e.g., a collective investment

vehicle, estate or trust). The determination of whether such financial interests are direct

or indirect will depend on whether the beneficial owner has control over the investment

vehicle or the ability to influence its investment decisions. When control over the

investment vehicle or the ability to influence investment decisions exists, that financial

interest shall be considered a direct financial interest. Conversely, when the beneficial

owner of the financial interest has no control over the investment vehicle or ability to

influence its investment decisions, that financial interest shall be considered an indirect

financial interest.

4.4 If a member of the engagement team, member of that individual’s immediate family, or a firm has a direct financial interest, or a material indirect financial interest in the audit or review client, the self-interest threat would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, none of the following shall have a direct financial interest or a material indirect financial interest in the client: a member of the engagement team, a member of that individual’s immediate family, or the firm.

4.5 When a member of the engagement team has a close family member who the

engagement team member knows has a direct financial interest or a material indirect

financial interest in the audit or review client, a self-interest threat is created. In

evaluating the significance of the threat, consideration shall be given to the nature of

the relationship between the member of the engagement team and the close family

member and the materiality of the financial interest to the close family member.



Safeguards shall be applied when necessary to eliminate the threat or reduce it to an

acceptable level. Examples of such safeguards include:

a) the close family disposing, as soon as practicable, of all of the financial interest or

disposing of a sufficient portion of an indirect financial interest so that the remaining

interest is no longer material;

b) having a professional colleague review the work of the member of the engagement

team; or

c) removing the individual from the engagement team.

4.6 If a member of the engagement team, member of that individual’s family, or a firm has a direct or material indirect financial interest in an entity that has a controlling interest in the audit or review client, and the client is material to the entity, the self-interest would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, neither a member of the engagement team, a member of that individual’s immediate family, nor the firm shall have a financial interest.

4.7 The holding by a firm’s retirement benefit plan of a direct or material indirect financial

interest in an audit or review client creates a self-interest threat. The significance of the

threat shall be evaluated and safeguards applied when necessary to eliminate the threat

or reduce it to an acceptable level.

4.8 If other partners in the office in which the engagement partner practises in connection with an audit or review engagement, or their immediate family members, hold a direct financial interest or a material indirect financial interest in that client, the self-interest threat would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, neither such partners nor their immediate family members shall hold any such financial interests in that audit or review client.

4.9 The office in which the engagement partner practises in connection with the audit or

review engagement is not necessarily the office to which that partner is assigned.

Therefore, when the engagement partner is located in a different office from that of the

other members of the engagement team, professional judgement shall be used to

determine in which office the partner practises in connection with that engagement.

4.10 If other partners and managerial personnel who provide non-assurance services to the audit or review client, except those whose involvement is minimal, or their immediate family members, hold a direct financial interest or a material indirect financial interest in the client, the self-interest threat would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, neither such personnel nor their immediate family members shall hold any such financial interest in such audit or review client.



4.11 Despite 4.8 and 4.10, the holding of a financial interest in an audit or review client by an

immediate family member of:

a) a partner located in the office in which the engagement partner practises in

connection with the engagement; or

b) a partner or managerial personnel who provides non-audit or non-review services to

the client;

is not deemed to compromise independence if the financial interest is received as a

result of the immediate family member’s employment rights (e.g., through pension or

share option plans) and, when necessary, safeguards are applied to eliminate any threat

to independence or reduce it to an acceptable level. However, when the immediate

family member has or obtains the right to dispose of the financial interest or, in the case

of a stock option, the right to exercise the option, the financial interest shall be disposed

of or forfeited as soon as practicable.

4.12 A self-interest threat may be created if the firm, member of the engagement team, or member of that individual’s immediate family has a financial interest in an entity and an audit or review client also has a financial interest in that entity. However, independence is not deemed to be compromised if these interests are immaterial and the client cannot exercise significant influence over the entity. If such interest is material to any party and the audit or review client can exercise significant influence over the other entity, no safeguards could reduce the threat to an acceptable level and the firm shall either dispose of the interest or withdraw from or decline the engagement. Any individual with such a material interest shall, before becoming a member of the engagement team, either: a) dispose of the interest; or b) dispose of a sufficient amount of the interest so that the remaining interest is

no longer material.

4.13 The firm shall determine whether a self-interest, familiarity, or intimidation threat is

created if a member of the engagement team, or a member of that individual’s

immediate family, or the firm, has a financial interest in an entity when a director,

officer, or controlling owner of the audit client is also known to have a financial interest

in that entity. Whether these interests create a self-interest threat will depend on

factors such as:

a) the role of the member on the engagement team;

b) whether ownership of the entity is closely or widely held;

c) whether the interest gives the investor the ability to control or significantly influence

the entity; and

d) the materiality of the financial interest.

The significance of any threat shall be evaluated and safeguards applied when necessary

to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards

include:



• removing the member with the financial interest from the engagement team; and

• having a professional colleague review the work of the member of the engagement

team.

4.14 The holding by a firm, or a member of the engagement team, or a member of that

individual’s immediate family, of a direct financial interest or a material indirect financial

interest in the audit or review client as a trustee creates a self-interest threat. Similarly,

a self-interest threat is created when:

a) a partner in the office in which the engagement partner practises in connection with

the engagement;

b) other partners and managerial personnel who provide non-assurance services to the

client, except those whose involvement is minimal; or

c) their immediate family members

hold a direct financial interest or a material indirect financial interest in the client as

trustee.

Holding such an interest is permitted when:

• neither the trustee, nor the immediate family member of the trustee, nor the firm

are beneficiaries of the trust;

• the interest in the client held by the trust is not material to the trust;

• the trust is not able to exercise significant influence over the client; and

• the trustee, an immediate family member of the trustee, or the firm cannot

significantly influence any investment decision involving a financial interest in the

client.

4.15 Members of the engagement team shall determine whether a self-interest threat is

created by any known financial interests in the audit or review client held by other

individuals including:

a) partners and professional personnel of the firm, other than those referred to above,

or their immediate family members; and

b) individuals with a close personal relationship with a member of the engagement

team.

Whether these interests create a self-interest threat will depend on factors such as:

• the firm’s organizational, operating, and reporting structure; and

• the nature of the relationship between the individual and member of the

engagement team.



The significance of any threat shall be evaluated and safeguards shall be applied when

necessary to eliminate the threat and reduce it to an acceptable level. Examples of such

safeguards include:

• removing the member of the engagement team with the personal relationship;

• excluding the member of the engagement team from any significant decision-making

concerning the engagement; and


team.

4.16 If a firm or a partner or personnel of the firm, or a member of that individual’s

immediate family, receives a direct financial interest or a material indirect financial

interest in an audit or review client, for example, by way of an inheritance, gift, or as

result of a merger, and such interest would not be permitted to be held under this

section, then:

a) If the interest is received by the firm, the financial interest shall be disposed of

immediately, or a sufficient amount of an indirect financial interest shall be disposed

of so that the remaining interest is no longer material, or the firm shall withdraw

from the engagement;

b) If the interest is received by a member of the engagement team, or a member of that

individual’s immediate family, the individual who received the financial interest shall

immediately dispose of the financial interest, or dispose of a sufficient amount of an

indirect financial interest so that the remaining interest is no longer material, or the

member shall be removed from the engagement team; or

c) If the interest is received by an individual who is not a member of the engagement

team, or by an immediate family member of the individual, the financial interest

shall be disposed of as soon as possible, or a sufficient amount of an indirect financial

interest shall be disposed of so that the remaining interest is no longer material.

Pending the disposal of the financial interest, a determination shall be made as to

whether any safeguards are necessary.

4.17 An inadvertent violation of this section as it relates to a financial interest in an audit or

review client is not deemed to compromise independence if all of the following

conditions are met:

a) the firm has established policies and procedures that require prompt notification to

the firm of any breaches resulting from the purchase, inheritance, or other

acquisition of a financial interest in the client;

b) the actions in paragraph 4.16 (a) to (c) are taken as applicable; and

c) the firm applies other safeguards when necessary to reduce any remaining threat to

an acceptable level. Examples of such safeguards include:

i) having a professional colleague review the work of the member of the

engagement team; or



ii) excluding the individual from any significant decision-making concerning the

engagement.

In addition, a determination shall be made as to whether to discuss the matter with

those charged with governance.

4.18 Loans and Guarantees

4.18 A loan, or a guarantee of a loan, to a member of the engagement team, or a member of

that individual’s immediate family, or the firm from an audit or review client that is a

bank or a similar institution may create a threat to independence.

4.19 If the loan or guarantee is not made under normal lending procedures, terms, and conditions, a self-interest threat would be created that would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, neither a member of the engagement team, nor a member of that individual’s immediate family, nor a firm shall accept such a loan or guarantee.

4.20 If a loan to a firm from an audit or review client that is a bank or similar institution is

made under normal lending procedures, terms, and conditions and it is material to the

audit or review client, or firm receiving the loan, it may be possible to apply safeguards

to reduce the self-interest threat to an acceptable level. An example of such a safeguard

is having the work reviewed by a professional colleague from a network firm that is

neither involved with the engagement nor received the loan.

4.21 A loan, or a guarantee of a loan, from an audit or review client that is a bank or a similar

institution to a member of the engagement team or a member of that individual’s

immediate family, does not create a threat to independence if the loan or guarantee is

made under normal lending procedures, terms, and conditions. Examples of such loans

include home mortgages, bank overdrafts, car loans, and credit card balances.

4.22 If the firm, or a member of the engagement team, or a member of that individual’s immediate family accepts a loan from, or has a borrowing guaranteed by, an audit or review client that is not a bank or similar institution, or an officer or director of the client, or a shareholder of the client that owns more than 10% of the equity, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level unless the loan or guarantee is immaterial to both the firm or the member of the engagement team and the immediate family member, and the client.

4.23 Similarly, if the firm, or a member of the engagement team, or a member of that individual’s immediate family makes or guarantees a loan to an audit or review client, an officer or director of the client, or a shareholder of the client that owns more than 10% of the equity, the self-interest threat would be so significant that no safeguards could reduce the threat to an acceptable level, unless the loan or



guarantee is immaterial to both the firm or the member of the engagement team and the immediate family member, and the client.

4.24 If a firm, or a member of the engagement team, or a member of that individual’s

immediate family has deposits or a brokerage account with an audit or review client that

is a bank, broker or similar institution, a threat to independence is not created if the

deposit or account is held under normal commercial terms.

4.25 Business Relationships

4.25 A close business relationship between a firm, a member of the engagement team, or a

member of that individual’s immediate family, and the audit or review client or its

management arises from a commercial relationship or common financial interest and

may create self-interest or intimidation threats. Examples of such relationships include:

a) having a financial interest in a joint venture with either the client or a controlling

owner, director, officer or other individual who performs senior managerial activities

for that client;

b) arrangements to combine one or more services or products of the firm with one or

more services or products of the client and to market the package with reference to

both parties; and

c) distribution or marketing arrangements under which the firm distributes or markets

the client’s products or services, or the client distributes or markets the firm’s

products or services.

Unless any financial interest is immaterial and the business relationship is insignificant to the firm and the client or its management, the threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, unless the financial interest is immaterial and the business relationship is insignificant: • the business relationship shall not be entered into, or shall be reduced to an

insignificant level or terminated; or • the firm shall decline or terminate the audit or review engagement.

In the case of a member of the engagement team, unless any such financial interest is

immaterial and the relationship is insignificant to that member, the individual shall be

removed from the engagement team.

If the business relationship is between an immediate family member of a member of the

engagement team and the audit or review client or its management, the significance of

any threat shall be evaluated and safeguards applied when necessary to eliminate the

threat or reduce it to an acceptable level.



4.26 A business relationship involving the holding of an interest by the firm, or a member of

the engagement team, or a member of that individual’s immediate family in a closely-

held entity when the audit or review client or a director or an officer of the client, or any

group thereof, also holds an interest in that entity, does not create threats to

independence if:

a) the business relationship is insignificant to the firm, the member of the engagement

team and the immediate family member, and the client;

b) the financial interest held is immaterial to the investor or group of investors; and

c) the financial interest does not give the investor, or group of investors, the ability to

control the closely-held entity.

4.27 The purchase of goods and services from an audit or review client by the firm, or a

member of the engagement team, or a member of that individual’s immediate family,

does not generally create a threat to independence if the transaction is in the normal

course of business and at arm’s-length. However, such transactions may be of a nature

or magnitude that they create a self-interest threat. The significance of any threat shall

be evaluated and safeguards applied when necessary to eliminate the threat or reduce it

to an acceptable level. Examples of such safeguards include:

a) eliminating or reducing the magnitude of the transaction; or

b) removing the individual from the engagement team.

4.28 Family and Personal Relationships

4.28 Family and personal relationships between a member of the engagement team and a

director, officer or certain employees (depending on their role) of the audit or review

client may create self-interest, familiarity, or intimidation threats. The existence and

significance of any threats will depend on a number of factors, including the individual’s

responsibilities on the engagement team, the role of the family member or other

individual within the client, and the closeness of the relationship. Consequently, the

particular circumstances will need to be evaluated in assessing the significance of these

threats.

4.29 When an immediate family member of a member of the engagement team is: a) a director or an officer of the audit or review client; or b) an employee in a position to exert significant influence over the preparation of

the client’s accounting records or the financial statements on which the firm will express an opinion; or was in such a position during any period covered by the engagement, or the

financial statements, the threats to independence can only be reduced to an acceptable level by removing the individual from the engagement team. The closeness of the relationship is such that no other safeguards could reduce that threat to an acceptable level. If this safeguard is not applied, the firm shall withdraw from the engagement.

4.30 Threats to independence are created when an immediate family member of a member

of the engagement team is an employee in a position to exert significant influence over



the client’s financial position, financial performance, or cash flows. The significance of

the threats will depend on factors such as:

a) the position held by the immediate family member; and

b) the role of the individual on the engagement team.

The significance of the threat shall be evaluated and safeguards applied when necessary


include:

• removing the individual from the engagement team; or

• structuring the responsibilities of the engagement team so that the individual does

not deal with matters that are within the responsibility of the immediate family

member.

4.31 Threats to independence are created when a close family member of a member of the

engagement team is:

• a director or an officer of the audit or review client;

• an employee in a position to exert significant influence over the preparation of the

client’s accounting records or the financial statements on which the firm will express

an opinion.

The significance of the threats will depend on factors such as:

a) the nature of the relationship between the member of the engagement team and the

close family member;

b) the position held by the close family member; and

c) the role of that individual on the engagement team.



include:



not deal with matters that are within the responsibility of the close family member.

4.32 Threats to independence are created when a member of the audit or review team has a

close relationship with a person who is not an immediate or close family member but

who is a director, officer, or employee in a position to exert significant influence over

the preparation of the client’s accounting records or the financial statements on which

the firm will express an opinion. Members of the engagement team are responsible for

identifying any such persons and for consulting in accordance with firm policies and

procedures. The significance of the threats will depend on factors such as:

a) the nature of the relationship between the individual and the member of the

engagement team;

b) the position the individual holds with the client; and

c) the role of that individual on the engagement team.



The significance of the threats shall be evaluated and safeguards applied when

necessary to eliminate the threats or reduce them to an acceptable level. Examples of

such safeguards include:



not deal with matters that are within the responsibility of the individual with whom

they have a close relationship.

4.33 Self-interest, familiarity, or intimidation threats may be created by a personal or family

relationship between:

• a partner or personnel of the firm who is not a member of the engagement team;

and

• a director, or an officer of the audit or review client, or an employee in a position to

exert significant influence over the preparation of the client’s accounting records or

the financial statements on which the firm will express an opinion.

Partners and personnel of the firm who are aware of any such relationships are

responsible for consulting in accordance with firm policies and procedures. The

existence and significance of any threat will depend on factors such as:

a) the nature of the relationship between the partner or personnel of the firm and the

director, officer, or employee of the client;

b) the interaction of the partner or personnel of the firm with the engagement team;

c) the position of the partner or personnel within the firm; and

d) the position the individual holds with the client.



include:

• structuring the partner’s or personnel’s responsibilities to reduce any potential

influence over the engagement; or

• having a professional colleague review the relevant work performed.

4.34 An inadvertent violation of this section as it relates to family and personal relationships

is not deemed to compromise independence if:


the firm of any breaches resulting from changes in the employment status of the

immediate or close family members, and other personal relationships that create

threats to independence;

b) the inadvertent violation relates to an immediate family member of a member of the

engagement team becoming a director or officer of the audit or review client or

being in a position to exert significant influence over the preparation of the client’s

accounting records or the financial statements on which the firm will express an

opinion, and the individual is removed from the engagement team; and



c) the firm considers and applies other safeguards when necessary to reduce any

remaining threat to an acceptable level. Examples of such safeguards include:


engagement team; or


engagement.

4.35 Employment with Audit or Review Clients

4.35 Familiarity or intimidation threats may be created if a director or an officer of the audit

or review client, or an employee in a position to exert significant influence over the

preparation of the client’s accounting records or the financial statements on which the

firm will express an opinion, has been a member of the engagement team or partner of

the firm.

4.36 If a former member of the engagement team or partner of the firm has joined the audit

or review client in such a position, and a significant connection remains between the

firm and the individual, the threat would be so significant that no safeguards could

reduce the threat to an acceptable level. Therefore, independence would be deemed to

be compromised if a former member of the engagement team or partner joins the client

as a director or officer, or as an employee in a position to exert significant influence over

the preparation of the client’s accounting records or the financial statements on which

the firm will express an opinion, unless:

a) the individual is not entitled to any benefits or payments from the firm, unless made

in accordance with fixed pre-determined arrangements, and any amount owed to the

individual is not material to the firm; and

b) the individual does not continue to participate or appear to participate in the firm’s

business or professional activities.

4.37 If a former member of the engagement team or partner of the firm has joined the client

in such a position, and no significant connection remains between the firm and the

individual, the existence and significance of any familiarity or intimidation threats will

depend on factors such as:

a) the position the individual has taken at the client;

b) any involvement the individual will have with the engagement team;

c) the length of time since the individual was a member of the engagement team or

partner of the firm; and

d) the former position of the individual within the engagement team or firm, for

example, whether the individual was responsible for maintaining regular contact with

the client’s management or those charged with governance.

The significance of any threats created shall be evaluated and safeguards applied when





• modifying the audit plan;

• assigning individuals to the engagement team who have sufficient experience in

relation to the individual who has joined the client; or

• having a professional colleague review the work of the former member of the

engagement team.

4.38 If a former partner of the firm has previously joined an entity in such a position and the

entity subsequently becomes an audit or review client of the firm, the significance of

any threat to independence shall be evaluated and safeguards applied when necessary

to eliminate the threat or reduce it to an acceptable level.

4.39 A self-interest threat is created when a member of the engagement team participates in

the engagement while knowing that the member of the engagement team will, or may,

join the audit or review client at some time in the future. Firm policies and procedures

shall require members of the engagement team to notify the firm when entering

employment negotiations with the client. On receiving such notification, the

significance of the threat shall be evaluated and safeguards applied when necessary to

eliminate the threat or reduce it to an acceptable level. Examples of such safeguards

include:

a) removing the individual from the engagement team; or

b) a review of any significant judgements made by that individual while on the

engagement team.

4.40 Audit and Review Clients of Public Interest Entities

4.40 Familiarity or intimidation threats are created if a key audit partner joins an audit or

review client that is a public interest entity as:

a) a director or officer of the entity; or

b) an employee in a position to exert significant influence over the preparation of the

client’s accounting records or the financial statements on which the firm will express

an opinion.

No safeguards could reduce these threats to an acceptable level unless, subsequent to the partner ceasing to be a key audit partner, the public interest entity had issued, audited, or reviewed financial statements covering a period of not less than twelve months and the partner was not a member of the engagement team with respect to the audit or review of those financial statements.

4.41 An intimidation threat is created if the individual who is the firm’s Senior or Managing

Partner (Chief Executive or equivalent) joins an audit or review client that is a public

interest entity as:

a) an employee in a position to exert significant influence over the preparation of the

entity’s accounting records or its financial statements; or

b) a director or an officer of the entity.



No safeguards could reduce these threats to an acceptable level unless twelve months have passed since the individual was the Senior or Managing Partner (Chief Executive or equivalent) of the firm.

4.42 Independence is not deemed to be compromised if, as a result of a business

combination, a former key audit partner or the individual who was the firm’s former

Senior or Managing Partner is in a position as described in paragraphs 4.40 and 4.41,

and:

a) the position was not taken in contemplation of the business combination;

b) any benefits or payments due to the former partner from the firm have been settled

in full, unless made in accordance with fixed pre-determined arrangements and any

amount owed to the partner is not material to the firm;

c) the partner does not continue to participate or appear to participate in the firm’s

business or professional activities; and

d) the position held by the former partner with the audit or review client is discussed

with those charged with governance.

4.43 Temporary Personnel Assignments

4.43 The lending of personnel by a firm to an audit or review client may create a self-review

threat. Such assistance may be given, but only for a short period of time, and the firm’s

personnel shall not be involved in:

a) providing non-assurance services that would not be permitted under this section; or

b) assuming management responsibilities.

In all circumstances, the audit or review client should acknowledge its responsibility for

directing and supervising the activities of the loaned personnel.



include:

• conducting an additional review of the work performed by the loaned personnel;

• not giving the loaned personnel audit or review responsibility for any function or

activity they performed during the temporary personnel assignment; or

• not including the loaned personnel as a member of the engagement team.

4.44 Recent Service with an Audit or Review Client

4.44 Self-interest, self-review, or familiarity threats may be created if a member of the audit

team has recently served as a director, officer, or employee of the audit or review client.

This would be the case when, for example, a member of the engagement team has to

evaluate elements of the financial statements for which they had prepared the

accounting records while with the client.

4.45 If, during the period covered by the audit or review report, a member of the engagement team had served as a director or officer of the client, or was an employee in a position to exert significant influence over the preparation of the



client’s accounting records or the financial statements on which the firm will express an opinion, the threat created would be so significant that no safeguard could reduce the threat to an acceptable level. Consequently, such individuals shall not be assigned to the engagement team.

4.46 Self-interest, self-review, or familiarity threats may be created if, before the period

covered by the audit or review report, a member of the engagement team had served as

a director or officer of the client or was an employee in a position to exert significant

influence over the preparation of the client’s accounting records or financial statements

on which the firm will express an opinion. For example, such threats would be created if

a decision made or work performed by the individual in the prior period, while

employed by the client, is to be evaluated in the current period as part of the current

engagement. The existence and significance of any threats will depend on factors such

as:

a) the position the individual held with the client;

b) the length of time since the individual left the client; and

c) the role of that member on the engagement team.


to reduce the threat to an acceptable level. An example of such a safeguard is

conducting a review of the work performed by the individual as a member of the

engagement team.

4.47 Serving as an Officer or Director on the Board of an Audit or Review Client

4.47 If a partner or employee of the firm serves as a director or officer of an audit or review client, the self-review and self-interest threats created would be so significant that no safeguards could reduce the threats to an acceptable level. Therefore, if such an individual were to accept such a position while continuing to serve as a partner or an employee of the firm, the firm shall decline or withdraw from the engagement.

4.48 If a partner or employee of the firm serves as Company Secretary for an audit or review

client, self-review and advocacy threats are created that would generally be so

significant that no safeguards could reduce the threats to an acceptable level. Despite

paragraph 4.47, when this practice is specifically permitted under local law, professional

rules or practice, and provided management makes all relevant decisions, the duties and

activities shall be limited to those of a routine and administrative nature, such as

preparing minutes and maintaining statutory returns. In those circumstances, the

significance of any threats shall be evaluated and safeguards applied when necessary to

eliminate the threats or reduce them to an acceptable level.

4.49 Performing routine administrative services to support a company secretarial function or

providing advice in relation to company secretarial administration matters does not

generally create threats to independence, as long as client management makes all

relevant decisions.



4.50 Long Association of Senior Personnel (Including Partner Rotation)

4.50 Familiarity and self-interest threats are created by using the same senior personnel on

an audit or review engagement over a long period of time. The significance of the

threats will depend on factors such as:

a) how long the individual has been a member of the engagement team;

b) the role of the individual on the engagement team;

c) the structure of the firm;

d) the nature of the engagement;

e) whether the client’s management team has changed; and

f) whether the nature or complexity of the client’s accounting and reporting issues has

changed.




• rotating the senior personnel off the engagement team;

• having a professional colleague who was not a member of the engagement team

review the work of the senior personnel; or

• regular independent internal or external quality control reviews of the engagement.

Audit or Review Clients that are Public Interest Entities 4.51 Using the same key audit or review partner on an audit engagement over a prolonged

period may create a familiarity threat. This threat is particularly relevant in the context of the audit for reporting issuers and safeguards shall be applied in such situations to reduce the threats to an acceptable level. The following safeguards shall apply for the audit of reporting issuers:

a) in respect of an audit of a public interest entity, an individual shall not be a key

audit partner for more than seven years. After such time, the individual shall not return to the audit team or be a key audit partner for the client for two years. During that period, the individual shall not participate in the audit of the entity, provide quality control for the engagement, consult with the audit team or the client regarding technical or industry-specific issues, transactions or events or otherwise directly influence the outcome of the engagement;

b) a member who is other than a key audit partner referred to in 4.51(a) who, during the engagement period provides more than ten hours of assurance services, or who is a subsidiary engagement partner, shall be rotated off after a period of no more than seven years; and

c) persons rotating off the audit of a reporting issuer pursuant to 4.51(a) shall not participate in the assurance engagement as a key audit partner until a further two years has elapsed. In the case of 4.51(b), the member shall not participate in the assurance engagement as an engagement partner until a period of two years has elapsed. In the case of an audit engagement that is a mutual fund, the engagement partner shall not thereafter perform the role of engagement partner of the reporting issuer or another mutual fund that is in the same mutual fund complex as the reporting issuer until a further two-year-period has elapsed; and



d) in the case of an audit engagement of a reporting issuer that is a mutual fund, the key audit partner shall not thereafter resume or assume either such role with the reporting issuer or another mutual fund that is in the same mutual fund complex as the reporting issuer until a further two-year-period has elapsed.

4.52 Despite paragraph 4.51, key audit partners whose continuity is especially important to

audit quality may, in rare cases due to external and unforeseen circumstances outside

the firm’s control, be permitted an additional year on the audit team as long as the

threat to independence can be eliminated or reduced to an acceptable level by applying

safeguards. For example, a key audit partner may remain on the audit team for up to

one additional year in circumstances where, due to unforeseen events, a required

rotation was not possible, as might be the case due to serious illness of the intended

engagement partner.

4.53 The long association of other partners with an audit or review client that is a public

interest entity creates familiarity and self-interest threats. The significance of the threats

will depend on factors such as:

a) how long any such partner has been associated with the client;

b) the role, if any, of the individual on the engagement team; and

c) the nature, frequency, and extent of the individual’s interactions with the client’s

management or those charged with governance.




• rotating the partner off the audit or review team or otherwise ending the partner’s

association with the client; or


4.54 When an audit or review client becomes a public interest entity, the length of time the

individual has served the client as a key audit or review partner before the client

becomes a public interest entity shall be considered in determining when the individual

shall be rotated. If the individual has served the client as a key audit or review partner

for five years or less at the time the client becomes a public interest entity, the number

of years the individual may continue to serve the client in that capacity before rotating

off the engagement is seven years less the number of years already served. If the

individual has served the client as a key audit or review partner for six or more years

when the client becomes a public interest entity, the partner may continue to serve in

that capacity for two additional years before rotating off the engagement.

4.55 Provision of Non-assurance Services to an Audit or Review Client

4.55 Firms have traditionally provided to their audit or review clients a range of non-

assurance services that are consistent with their skills and expertise. Providing non-

assurance services may, however, create threats to the independence of the firm or

members of the engagement team. The threats created are most often self-review, self-

interest, and advocacy threats.



4.56 New developments in business, the evolution of financial markets, and changes in

information technology make it impossible to draw up an all-inclusive list of non-

assurance services that might be provided to an audit or review client. When specific

guidance on a particular non-assurance service is not included in this section, the

conceptual framework shall be applied when evaluating the particular circumstances.

4.57 Before the firm accepts an engagement to provide a non-assurance service to an audit

or review client, a determination shall be made as to whether providing such a service

would create a threat to independence. In evaluating the significance of any threat

created by a particular non-assurance service, consideration shall be given to any threat

that the engagement team has reason to believe is created by providing other related

non-assurance services. If a threat is created that cannot be reduced to an acceptable

level by the application of safeguards, the non-assurance service shall not be provided.

4.58 Providing certain non-assurance services to an audit or review client may create a threat

to independence so significant that no safeguards could reduce the threat to an

acceptable level. However, the inadvertent provision of such a service to a related

entity, division, or in respect of a discrete financial statement item of such a client does

not compromise independence if any threats have been reduced to an acceptable level

by arrangements for that related entity, division, or discrete financial statement item to

be audited or reviewed by another firm or when another firm re-performs the non-

assurance service to the extent necessary to enable it to take responsibility for that

service.

4.59 A firm may provide non-assurance services that would otherwise be restricted under

this section to the following entities of the audit or review client:

a) an entity, which is not an audit or review client, that has direct or indirect control

over the client; or

b) an entity, which is not an audit or review client, that is under common control with

the client

if it is reasonable to conclude that:

• the services do not create a self-review threat because the results of the services will

not be subject to audit or review procedures; and

• any threats that are created by the provision of such services are eliminated or

reduced to an acceptable level by the application of safeguards.

4.60 A non-assurance service provided to an audit or review client does not compromise the

firm’s independence when the client becomes a public interest entity if:

a) the previous non-assurance service complies with the provisions of this section that

relate to audit or review clients that are not public interest entities;

b) services that are not permitted under this section for audit or review clients that are

public interest entities are terminated before or as soon as practicable after the

client becomes a public interest entity; and

c) the firm applies safeguards when necessary to eliminate or reduce to an acceptable

level any threats to independence arising from the service.



4.61 Management Responsibilities

4.61 Management of an entity performs many activities in managing the entity in the best

interests of the stakeholders of the entity. It is not possible to specify every activity that

is a management responsibility. However, management responsibilities involve leading

and directing an entity, including making significant decisions regarding the acquisition,

deployment, and control of human, financial, physical, and intangible resources.

4.62 Whether an activity is a management responsibility depends on the circumstances and

requires the exercise of judgement. Examples of activities that would generally be

considered a management responsibility include:

a) setting policies and strategic direction;

b) directing and taking responsibility for the actions of the entity’s employees;

c) authorizing transactions;

d) deciding which recommendations of the firm or other third parties to implement;

e) taking responsibility for the preparation and fair presentation of the financial

statements in accordance with the applicable financial reporting framework; and

f) taking responsibility for designing, implementing, and maintaining internal control.

4.63 Activities that are routine and administrative, or involve matters that are insignificant,

generally are not deemed to be a management responsibility. For example, executing an

insignificant transaction that has been authorized by management or monitoring the

dates for filing statutory returns and advising an audit or review client of those dates is

not deemed to be a management responsibility. Further, providing advice and

recommendations to assist management in discharging its responsibilities is not

assuming a management responsibility.

4.64 If a firm were to assume a management responsibility for an audit or review client, the threats created would be so significant that no safeguards could reduce the threats to an acceptable level. For example, deciding which recommendations of the firm to implement will create self-review and self-interest threats. Further, assuming a management responsibility creates a familiarity threat because the firm becomes too closely aligned with the views and interests of management. Therefore, the firm shall not assume a management responsibility for such a client.

4.65 To avoid the risk of assuming a management responsibility when providing non-

assurance services to an audit or review client, the firm shall be satisfied that a member

of management is responsible for making the significant judgements and decisions that

are the proper responsibility of management, evaluates the results of the service, and

accepts responsibility for the actions to be taken arising from the results of the service.

This reduces the risk of the firm inadvertently making any significant judgements or

decisions on behalf of management. The risk is further reduced when the firm gives the

client the opportunity to make judgements and decisions on an objective and

transparent analysis and presentation of the issues.



4.66 Preparing Accounting Records and Financial Statements

4.66 Management is responsible for the preparation and fair presentation of the financial

statements in accordance with the applicable financial reporting framework. These

responsibilities include:

a) originating or changing journal entries, or determining the account classifications of

transactions; and

b) preparing or changing source documents or originating data, in electronic or other

form, evidencing the occurrence of a transaction (for example, purchase orders,

payroll time records, and customer orders).

4.67 Providing an audit or review client with accounting and bookkeeping services, such as

preparing accounting records or financial statements, creates a self-review threat when

the firm subsequently performs the audit or review engagement on the client’s financial

statements.

4.68 The audit or review process, however, necessitates dialogue between the firm and

management of the client, which may involve:

a) the application of accounting standards or policies and financial statement disclosure

requirements;

b) the appropriateness of financial and accounting control and the methods used in

determining the stated amounts of assets and liabilities; and

c) proposing adjusting journal entries.

These activities are considered to be a normal part of the engagement process and

do not, generally, create threats to independence.

4.69 Similarly, the client may request technical assistance from the firm on matters such as

resolving account reconciliation problems or analyzing and accumulating information for

regulatory reporting. In addition, the client may request technical advice on accounting

issues such as the conversion of existing financial statements from one financial

reporting framework to another (for example, to comply with group accounting policies

to transition to a different financial reporting framework such as International Financial

Reporting Standards). Such services do not, generally, create threats to independence

provided the firm does not assume a management responsibility for the client.

Audit or Review Clients that are Not Public Interest Entities

4.70 The firm may provide services related to the preparation of accounting records and

financial statements to an audit or review client that is not a public interest entity where

the services are of a routine or mechanical nature, so long as any self-review threat

created is reduced to an acceptable level. Examples of such services include:

a) providing payroll services based on client-originated data;

b) recording transactions for which the client has determined or approved the

appropriate account classification;

c) posting transactions coded by the client to the general ledger;

d) posting client-approved entries to the trial balance; and

e) preparing financial statements based on information in the trial balance.



In all cases, the significance of any threat created shall be evaluated and safeguards

applied when necessary to eliminate the threat or reduce it to an acceptable level.

Examples of such safeguards include:

• arranging for such services to be performed by an individual who is not a member of

the engagement team; or

• if such services are performed by a member of engagement team, using a partner or

senior personnel with appropriate expertise who is not a member of the engagement

team to review the work performed.

Audit or Review Clients that are Public Interest Entities

4.71 Except in emergency situations, a firm shall not provide to an audit or review client that is a reporting issuer or a public interest entity accounting and bookkeeping services, including payroll services, or prepare financial statements on which the firm will express an opinion or financial information which forms the basis of the financial statements.

4.72 Despite paragraph 4.71, a firm may provide accounting and bookkeeping services,

including payroll services and the preparation of financial statements or other financial

information, of a routine or mechanical nature for divisions or related entities of an

audit or review client that is a reporting issuer client or a public interest entity if the

personnel providing the services are not members of the engagement team and:

a) the divisions or related entities for which the service is provided are collectively

immaterial to the financial statements on which the firm will express an opinion; or

b) the services relate to matters that are collectively immaterial to the financial

statements of the division or related entity.

4.73 Emergency Situations

4.73 Accounting and bookkeeping services, which would otherwise not be permitted under

this section, may be provided to audit or review clients in emergency or other unusual

situations when it is impractical for the client to make other arrangements. This may be

the case when:

a) only the firm has the resources and necessary knowledge of the client’s systems and

procedures to assist the client in the timely preparation of its accounting records and

financial statements; and

b) a restriction on the firm’s ability to provide the services would result in significant

difficulties for the client (for example, as might result from a failure to meet

regulatory reporting requirements).

In such situations, a firm may provide such services if:

• those who provide the services are not members of the engagement team; and

• the services are provided for only a short period of time and are not expected to

recur.



In addition, the situation shall be discussed with those charged with governance.

4.74 Valuation Services

4.74 A valuation comprises the making of assumptions with regard to future developments,

the application of appropriate methodologies and techniques, and the combination of

both to compute a certain value, or range of values, for an asset, a liability, or for a

business as a whole.

4.75 Performing valuation services for an audit or review client may create a self-review

threat. The existence and significance of any threat will depend on factors such as:

a) whether the valuation will have a material effect on the financial statements;

b) the extent of the client’s involvement in determining and approving the valuation

methodology and other significant matters of judgement;

c) the availability of established methodologies and professional guidelines;

d) for valuations involving standard or established methodologies, the degree of

subjectivity inherent in the item;

e) the reliability and extent of the underlying data;

f) the degree of dependence on future events of a nature that could create significant

volatility inherent in the amounts involved; and

g) the extent and clarity of the disclosures in the financial statements.

The significance of any threat created shall be evaluated and safeguards applied when

necessary to eliminate the threat or reduce it to an acceptable level. Examples of such

safeguards include:

• having a professional who was not involved in providing the valuation service review

the audit, review, or valuation work performed; or

• making arrangements so that personnel providing such services do not participate in

the engagement.

4.76 Certain valuations do not involve a significant degree of subjectivity. This is likely the

case where the underlying assumptions are either established by law or regulation, or

are widely accepted, and when the techniques and methodologies to be used are based

on generally accepted standards or prescribed by law or regulation. In such

circumstances, the results of a valuation performed by two or more parties are not likely

to be materially different.

4.77 If a firm is requested to perform a valuation to assist an audit or review client with its

tax reporting obligations or for tax planning purposes and the results of the valuation

will not have a direct effect on the financial statements, the provisions included in

paragraph 4.90 apply.



Audit Clients that are Not Public Interest Entities

4.78 In the case of an audit or review client that is not a public interest entity, if the valuation service has a material effect on the financial statements on which the firm will express an opinion and the valuation involves a significant degree of subjectivity, no safeguards could reduce the self-review threat to an acceptable level. Therefore, the firm shall either not provide the valuation service or shall withdraw from the audit engagement.

Audit and Review Clients that are Public Interest Entities

4.79 A firm shall not provide valuation services to an audit or review client that is a public interest entity if the valuations would have a material effect, separately or in the aggregate, on the financial statements on which the firm will express an opinion.

4.80 Taxation Services

4.80 Taxation services comprise a broad range of services, including:

a) tax return preparation;

b) tax calculations for the purpose of preparing the accounting entries;

c) tax planning and other tax advisory services; and

d) assistance in the resolution of tax disputes.

While taxation services provided by a firm to an audit or review client are addressed

separately under each of these broad headings, in practice these activities are often

interrelated.

4.81 Performing certain tax services may create self-review and advocacy threats. The

existence and significance of any threats will depend on factors such as:

a) the system by which the tax authorities assess and administer the tax in question and

the role of the firm in that process;

b) the complexity of the relevant tax regime and the degree of judgement necessary in

applying it;

c) the particular characteristics of the engagement; and

d) the level of tax expertise of the audit or review client’s employees.

Tax Return Preparation

4.82 Tax return preparation services involve assisting clients with their tax reporting

obligations by drafting and completing information, including the amount of tax due

(usually on standardized forms) required to be submitted to the applicable tax

authorities. Such services also include advising on the tax return treatment of past

transactions and responding on behalf of the audit or review client to the tax

authorities’ requests for additional information and analysis (including providing

explanations of and technical support for the approach being taken). Tax return

preparation services are generally based on historical information and principally involve

analysis and presentation of such historical information under existing tax law, including



precedents and established practice. Further, the tax returns are subject to whatever

review or approval process the tax authority deems appropriate. Therefore, providing

such services do not generally create a threat to independence if management takes

responsibility for the returns including any significant judgements made.

Tax Calculations for the Purpose of Preparing the Accounting Entries

4.83 Preparing calculations of current and future tax liabilities (or assets) for an audit or

review client for the purpose of the preparation of accounting entries that will be

subsequently audited or reviewed by the firm creates a self-review threat. The

significance of the threat will depend on:

a) the complexity of the relevant tax law and regulation and the degree of judgement

necessary in applying them;

b) the level of tax expertise of the client’s personnel; and

c) the materiality of the amounts to the financial statements.

Safeguards shall be applied when necessary to eliminate the threat or reduce it to


• using professionals who are not members of the engagement team to perform the

service;

• if the service is performed by a member of the engagement team, using a partner or

senior personnel with appropriate expertise who is not a member of the engagement

team to review the tax calculations; or

• obtaining advice on the service from an external tax professional.


4.84 Except in emergency situations, in the case of an audit or review client that is a public interest entity, a firm shall not prepare tax calculations of current and future tax liabilities (or assets) for the purpose of preparing accounting entries that are material to the financial statements on which the firm will express an opinion.

4.85 The preparation of calculations of current and future tax liabilities (or assets) for an

audit or review client for the purpose of the preparation of accounting entries, which

would otherwise not be permitted under this section, may be provided to clients in

emergency or other unusual situations when it is impractical for the client to make other

arrangements. This may be the case when:

a) only the firm has the resources and necessary knowledge of the client’s business to

assist the client in the timely preparation of its calculations of current and future tax

liabilities (or assets); and

b) a restriction on the firm’s ability to provide the services would result in significant

difficulties for the client (for example, as might result from a failure to meet

regulatory reporting requirements).



In such situations, a firm may provide such services if:

• those who provide the services are not members of the engagement team; and

• the services are provided for only a short period of time and are not expected to

recur.

In addition, the situation shall be discussed with those charged with governance.

Tax Planning and Other Tax Advisory Services

4.86 Tax planning or other advisory services comprise a broad range of services such as

advising the client how to structure its affairs in a tax efficient manner or advising on the

application of a new tax law or regulation.

4.87 A self-review threat may be created where the advice will affect matters to be reflected

in the financial statements. The existence and significance of any threat will depend on

factors such as:

a) the degree of subjectivity involved in determining the appropriate treatment for the

tax advice in the financial statements;

b) the extent to which the outcome of the tax advice will have a material effect on the

financial statements;

c) whether the effectiveness of the tax advice depends on the accounting treatment or

presentation in the financial statements and there is doubt as to the appropriateness

of the accounting treatment or presentation under the relevant financial reporting

framework;

d) the level of tax expertise of the client’s employees;

e) the extent to which the advice is supported by tax law or regulations, other

precedent or established practice; and

f) whether the tax treatment is supported by a private ruling or has otherwise been

cleared by the tax authority before the preparation of the financial statements.

For example, providing tax planning and other tax advisory services where the advice is

clearly supported by tax authority or other precedent, by established practice, or has a

basis in tax law that is likely to prevail does not generally create a threat to

independence.

4.88 The significance of any threat shall be evaluated and safeguards applied when necessary


include:

a) using professionals who are not members of the engagement team to perform the

service;



b) having a tax professional, who was not involved in the providing the tax services,

advise the engagement team on the service and review the financial statement

treatment;

c) obtaining advice on the service from an external tax professional; or

d) obtaining pre-clearance or advice from the tax authorities.

4.89 Where the effectiveness of the tax advice depends on a particular accounting treatment or presentation in the financial statements and: a) the engagement team has reasonable doubt as to the appropriateness of the

related accounting treatment or presentation under the relevant financial reporting framework; and

b) the outcome or consequences of the tax advice will have a material effect on the financial statements on which the firm will express an opinion;

the self-review threat would be so significant that no safeguards could reduce the threat to an acceptable level, in which case such tax advice shall not be provided. The only other course of action would be to withdraw from the engagement.

4.90 In providing tax services to an audit or review client, a firm may be requested to perform

a valuation to assist the client with its tax reporting obligations or for tax planning

purposes. Where the result of the valuation will have a direct effect on the financial

statements, the provisions included in paragraphs 4.74 to 4.79 relating to valuation

services are applicable. Where the valuation is performed for tax purposes only and the

result of the valuation will not have a direct effect on the financial statements (i.e., the

financial statements are only affected through accounting entries related to tax), this

would not generally create threats to independence if such effect on the financial

statements is immaterial or if the valuation is subject to external review by a tax

authority or similar regulatory authority. If the valuation is not subject to such an

external review and the effect is material to the financial statements, the existence and

significance of any threat created will depend upon factors such as:

a) the extent to which the valuation methodology is supported by tax law or regulation,

other precedent, or established practice, and the degree of subjectivity inherent in

the valuation;

b) the reliability and extent of the underlying data.

The significance of any threat created shall be evaluated and safeguards applied when


safeguards include:


service;

• having a professional review the work or the result of the tax service; or

• obtaining pre-clearance or advice from the tax authorities.



Assistance in the Resolution of Tax Disputes

4.91 An advocacy or self-review threat may be created when the firm represents an audit or

review client in the resolution of a tax dispute once the tax authorities have notified the

client that they have rejected the client’s arguments on a particular issue and either the

tax authority or the client is referring the matter for determination in a formal

proceeding, for example, before a tribunal or court. The existence and significance of

any threat will depend on factors such as:

a) whether the firm has provided the advice which is the subject of the tax dispute;

b) the extent to which the outcome of the dispute will have a material effect on the

financial statements on which the firm will express an opinion;

c) the extent to which the matter is supported by tax law or regulation, other

precedent, or established practice;

d) whether the proceedings are conducted in public; and

e) the role management plays in the resolution of the dispute.

The significance of the threat created shall be evaluated and safeguards applied when


safeguards include:


service;

• having a tax professional who was not involved in providing the tax services advise

the engagement team on the services and review the financial statement treatment;

or

• obtaining advice on the service from an external tax professional.

4.92 Where the taxation services involve acting as an advocate for an audit or review client before a public tribunal or court in the resolution of a tax matter, and the amounts involved are material to the financial statements on which the firm will express an opinion, the advocacy threat would be so significant that no safeguards could eliminate the threat to an acceptable level. Therefore, the firm shall not perform this type of service for an audit or review client.

4.93 The firm is not, however, precluded from having a continuing advisory role (for example,

responding to specific requests for information, providing factual accounts or testimony

about the work performed, or assisting the client in analyzing the tax issues) for an audit

or review client in relation to the matter that is being heard before a public tribunal or

court.



4.94 Internal Audit Services

4.94 The scope and objectives of internal audit activities vary widely and depend on the size

and structure of the entity and the requirements of management and those charged

with governance. Internal audit activities may include one or more of the following:

a) Monitoring of internal control — reviewing controls, monitoring their operation, and

recommending improvements thereto;

b) Examination of financial and operating information — reviewing the means used to

identify, measure, classify, and report financial and operating information, and

specific inquiry into individual items including detailed testing of transactions,

balances, and procedures;

c) Review of the economy, efficiency, and effectiveness of operating activities including

non-financial activities of an entity; and

d) Review of compliance with laws, regulations, and other external requirements, and

with management policies and directives and other internal requirements.

4.95 Internal audit services involve assisting the audit or review client in the performance of

its internal audit activities. For the purposes of this section, internal audit services do

not include providing recommendations to management, which form a component of

improvements for consideration to the internal audit process. In addition, interim audit

processes completed by an audit firm are not a substitution for the client’s own internal

audit activities. The provision of internal audit services to an audit or review client

creates a self-review threat to independence if the firm uses the internal audit work in

the course of a subsequent external audit. Assisting a client in the performance of a

significant part of the client’s internal audit activities increases the possibility that firm

personnel providing internal audit services will assume a management responsibility.

4.96 If the firm’s personnel assume a management responsibility when providing internal audit services to an audit or review client, the threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, a firm shall ensure that its personnel do not assume a management responsibility when providing internal audit services to a client.

4.97 Examples of internal audit services that involve assuming management responsibilities

include:

a) setting internal audit policies or the strategic direction of internal audit activities;

b) directing and taking responsibility for the actions of the entity’s internal audit

employees;

c) deciding which recommendations resulting from internal audit activities to

implement;

d) reporting the results of the internal audit activities to those charged with governance

on behalf of management;



e) performing procedures that form part of the internal control, such as reviewing and

approving changes to employee data access privileges;

f) taking responsibility for designing, implementing, and maintaining internal control;

and

g) performing outsourced internal audit services, comprising all or a substantial portion

of the internal audit function, where the firm is responsible for determining the

scope of the internal audit work and may have responsibility for one of more of the

matters noted in (a)–(f).

4.98 To ensure that, in performing internal audit services, the firm does not assume a

management responsibility, the firm shall only provide internal audit services to an audit

or review client if all of the following conditions are met:

a) the client designates an appropriate and competent resource, preferably within senior management, to be responsible at all times for internal audit activities and to acknowledge responsibility for designing, implementing, and maintaining internal control;

b) the client’s management or those charged with governance reviews, assesses, and approves the scope, risk, and frequency of the internal audit services;

c) the client’s management evaluates the adequacy of the internal audit services and the findings resulting from their performance;

d) the client’s management evaluates and determines which recommendations resulting from internal audit services to implement and manages the implementation process; and

e) the client’s management reports to those charged with governance the significant findings and recommendations resulting from the internal audit services.

4.99 When a firm uses the work of an internal audit function, International Standards on

Auditing (and domestically the Canadian Auditing Standards) require the performance of

procedures to evaluate the adequacy of that work. When a firm accepts an engagement

to provide internal audit services to an audit or review client, and the results of those

services will be used in conducting the external audit, a self-review threat is created

because of the possibility that the engagement team will use the results of the internal

audit service without appropriately evaluating those results or exercising the same level

of professional skepticism as would be exercised when the internal audit work is

performed by individuals who are not members of the firm. The significance of the

threat will depend on factors such as:

a) the materiality of the related financial statement amounts;

b) the risk of misstatement of the assertions related to those financial statement

amounts; and

c) the degree of reliance that will be placed on the internal audit service.


to eliminate the threat or reduce it to an acceptable level. An example of such a



safeguard is using professionals who are not members of the engagement team to

perform the internal audit service.


4.100 In the case of an audit or review client that is a public interest entity, a firm shall not provide internal audit services that relate to the internal accounting controls, financial systems or financial statements.

4.101 A firm is not, however, precluded from providing to an audit or review client that is a

public interest entity a non-recurring internal audit service to evaluate a specific matter

that relates to the internal accounting controls, financial systems, or financial

statements provided the conditions in paragraph 4.98 are met, the facts and

circumstances related to the service are discussed with those charges with governance,

the service would otherwise be permitted under the CGA Independence Standard

provisions, and safeguards are applied when necessary to reduce any threat to an

acceptable level.

4.102 IT Systems Services

4.102 Services related to information technology (IT) systems include the design or

implementation of hardware or software systems. The systems may aggregate source

data, form part of the internal control over financial reporting, or generate information

that affects the accounting records or financial statements, or the systems may be

unrelated to the audit or review client’s accounting records, the internal control over

financial reporting, or financial statements. Providing systems services may create a

self-review threat depending on the nature of the services and the IT systems.

4.103 The following IT systems services are not deemed to create a threat to independence as

long as firm personnel do not assume a management responsibility:

a) design or implementation of IT systems that are unrelated to internal control over

financial reporting;

b) design or implementation of IT systems that do not generate information forming a

significant part of the accounting records or financial statements;

c) implementation of “off-the-shelf” accounting or financial information reporting

software that was not developed by the firm if the customization required to meet

the client’s needs is not significant; and

d) evaluating and making recommendations with respect to a system designed,

implemented, or operated by another service provider or the client.

Audit or Review Clients that are Not Public Interest Entities

4.104 Providing services to an audit or review client that is not a public interest entity

involving the design or implementation of IT systems that:

a) form a significant part of the internal control over financial reporting; or

b) generate information that is significant to the client’s accounting records or financial

statements on which the firm will express an opinion;



creates a self-review threat.

The self-review threat is likely too significant to permit such services unless

appropriate safeguards are put in place ensuring that:

• the client acknowledges its responsibility for establishing and monitoring a system of

internal controls;

• the client assigns the responsibility to make all management decisions with respect

to the design and implementation of the hardware or software system to a

competent employee, preferably within senior management;

• the client makes all management decisions with respect to the design and

implementation process;

• the client evaluates the adequacy and results of the design and implementation of

the system; and

• the client is responsible for operating the system (hardware or software) and the

data it uses or generates.

4.105 Depending on the degree of reliance that will be placed on the particular IT systems as

part of the audit or review, determination shall be made as to whether such non-

assurance services shall be provided only by personnel who are not members of the

engagement team and who have different reporting lines within the firm. The

significance of any remaining threat shall be evaluated and safeguards applied when

necessary to eliminate the threat or reduce it to an acceptable level. An example of such

a safeguard is having a professional colleague review the audit or review work or non-

assurance work.


4.106 In the case of an audit or review client that is a public interest entity, a firm shall not provide services involving the design or implementation of IT systems that: a) form a significant part of the internal control over financial reporting; or b) generate information that is significant to the client’s accounting records or

financial statements on which the firm will express an opinion.

4.107 Litigation Support Services

4.107 Litigation support services may include activities such as acting as an expert witness,

calculating estimated damages or other amounts that might become receivable or

payable as the result of litigation or other legal dispute, and assistance with document

management and retrieval. These services may create a self-review or advocacy threat.

4.108 If the firm provides a litigation support service to an audit or review client and the

service involves estimating damages or other amounts that affect the financial

statements on which the firm will express an opinion, the valuation service provision

included in paragraphs 4.74 to 4.79 shall be followed. In the case of other litigation

support services, the significance of any threat created shall be evaluated and

safeguards applied when necessary to eliminate the threat or reduce it to an acceptable

level.



4.109 Legal Services

4.109 For the purpose of this section, legal services are defined as any services for which the

person providing the services must either be admitted to practice law before the Courts

of the jurisdiction in which such services are to be provided or have the required legal

training to practice law. Such legal services may include a wide and diversified range of

areas including both corporate and commercial services to clients, such as contract

support, litigation, mergers, and acquisition legal advice and support and assistance to

clients’ internal legal departments. Providing legal services to an entity that is an audit

or review client may create both self-review and advocacy threats.

4.110 Legal services that support an audit or review client in executing a transaction (e.g.,

contract support, legal advice, legal due diligence, and restructuring) may create self-

review threats. The existence and significance of any threat will depend on factors such

as:

a) the nature of the service;

b) whether the service is provided by a member of the engagement team; and

c) the materiality of any matter in relation to client’s financial statements.



include:


service; or

• having a professional who was not involved in providing the legal services provide

advice to the engagement team on the service and review any financial statement

treatment.

4.111 Acting in an advocacy role for an audit or review client in resolving a dispute or litigation when the amounts involved are material in relation to the financial statements on which the firm will express an opinion would create advocacy and self-review threats so significant that no safeguards could reduce the threat to an acceptable level. Therefore, the firm shall not perform this type of service for an audit or review client.

4.112 When a firm is asked to act in an advocacy role for an audit or review client in resolving

a dispute or litigation when the amounts involved are not material to the financial

statements on which the firm will express an opinion, the firm shall evaluate the

significance of any advocacy and self-review threats created and apply safeguards when


safeguards include:

a) using professionals who are not members of the engagement team to perform the

service; or



b) having a professional who was not involved in providing the legal services advise the

engagement team on the service and review any financial statement treatment.

4.113 The appointment of a partner or an employee of the firm as General Counsel for legal affairs of an audit or review client would create self-review and advocacy threats that are so significant that no safeguards could reduce the threats to an acceptable level. The position of General Counsel is generally a senior management position with broad responsibility for the legal affairs of a company, and consequently, no member of the firm should accept such an appointment for an audit or review client.

4.114 Recruiting Services

4.114 Providing recruiting services to an audit or review client may create self-interest,

familiarity, or intimidation threats. The existence and significance of any threat will


a) the nature of the requested assistance; and

b) the role of the person to be recruited.


to eliminate the threat or reduce it to an acceptable level.

In all cases, the firm shall not undertake management responsibilities, including acting as a negotiator on the client’s behalf, and the hiring decision shall be left to the client.

The firm may generally provide such services as reviewing the professional qualifications

of a number of applicants and providing advice on their suitability for the post. In

addition, the firm may interview candidates and advise on a candidate’s competence for

financial accounting, administrative, or control positions.


4.115 A firm shall not provide the following recruiting services for an audit or review client that is a public interest entity with respect to a director or officer of the entity or senior management in a position to exert significant influence over the preparation of the client’s accounting records or the financial statements on which the firm will express an opinion:

a) searching for or seeking out candidates for such positions; and b) undertaking reference checks of prospective candidates for such positions.

4.116 Corporate Finance Services

4.116 Providing corporate finance services such as:

a) assisting an audit or review client in developing corporate strategies;



b) identifying possible targets for the audit or review client to acquire;

c) advising on disposal transactions;

d) assisting finance raising transactions; and

e) providing structuring advice

may create advocacy and self-review threats.



include:

• using professionals who are not members of the engagement team to provide the

services; or

• having a professional who was not involved in providing the corporate finance

service advise the engagement team on the service and review the accounting

treatment and any financial statement treatment.

4.117 Providing a corporate finance service, for example, advice on the structuring of a

corporate finance transaction or on financing arrangements that will directly affect

amounts that will be reported in the financial statements on which the firm will provide

an opinion may create a self-review threat. The existence and significance of any threat

will depend on factors such as:

a) the degree of subjectivity involved in determining the appropriate treatment for

the outcome or consequences of the corporate finance advice in the financial

statements;

b) the extent to which the outcome of the corporate finance advice will directly affect

amounts recorded in the financial statements and the extent to which the amounts

are material to the financial statements; and

c) whether the effectiveness of the corporate finance advice depends on a particular

accounting treatment or presentation in the financial statements and there is doubt

as to the appropriateness of the related accounting treatment or presentation

under the relevant financial reporting framework.



include:

• using professionals who are not members or the engagement team to perform the

service; or

• having an professional who was not involved in providing the corporate finance

service to the client advise the engagement team on the service and review the

financial statement treatment.

4.118 Where the effectiveness of corporate finance advice depends on a particular accounting treatment or presentation in the financial statements and:



a) the engagement team has reasonable doubt as to the appropriateness of the related accounting treatment or presentation under the relevant financial reporting framework; and

b) the outcome or consequences or the corporate finance advice will have a material effect on the financial statements on which the firm will express an opinion; the self-review threat would be so significant that no safeguards could reduce

the threat to an acceptable level, in which case the corporate finance advice shall not be provided.

4.119 Providing corporate finance services involving promoting, dealing in, or

underwriting an audit or review client’s shares would create an advocacy or self-review threat that is so significant no safeguards could reduce the threat to an acceptable level. Therefore, a firm shall not provide such services to an audit or review client.

4.120 Fees

4.120 When the total fees from an audit or review client represent a large proportion of the

total fees of the firm expressing the opinion, the dependence on that client and concern

about losing the client creates a self-interest threat. The significance of that threat will


a) the operating structure of the firm;

b) whether the firm is well established or newly created; and

c) the significance of the client qualitatively and/or quantitatively to the firm.



include:

• reducing the dependency on the client;

• external quality control reviews; or

• consulting a third party, such as the member advisor of an Affiliate or a professional

colleague, on key audit or review judgements.

4.121 A self-interest threat is also created when the fees generated by an audit or review

client represent a large proportion of the revenue from an individual partner’s clients or

a large proportion of the revenue of an individual office of the firm. The significance of

the threat will depend on factors such as:

a) the significance of the client qualitatively and/or quantitatively to the partner or

office; and

b) the extent to which the remuneration of the partner, or the partners in the office, is

dependent upon the fees generated from the client.



include:



• reducing the dependency on the audit or review client;

• having a professional colleague review the work or otherwise advise as necessary; or

• regular independent internal or external quality reviews of the engagement.


4.122 In the case of an audit or review client that is a public interest entity when, for two

consecutive years, the total fees from the client and its related entities (subject to the

considerations in paragraph 2.10) represent more than 15% of the total fees received by

the firm expressing the opinion on the financial statements of the client, the self-

interest threat created would be too significant unless the firm discloses to those

charged with governance of the audit or review client the fact that the total of such fees

represents more than 15% of the total fees received by the firm and discusses which of

the safeguards below will be applied to reduce the threat to an acceptable level:

a) After the opinion on the second year’s financial statements has been issued, and

before the issuance of the audit opinion on the third year’s financial statements, a

professional colleague, who is not a member of the firm expressing the opinion on

the financial statements of the client, or a professional regulatory body, performs a

review that is equivalent to the engagement quality control review (a post-issuance

review); or

b) Prior to the issuance of the opinion on the second year’s financial statements, a

professional colleague, who is not a member of the firm expressing the opinion on

the financial statements of the client, performs an engagement quality control

review or a professional regulatory body performs a review that is equivalent to the

engagement quality control review (a pre-issuance review).

When the total fees significantly exceed 15%, the firm shall determine whether the

significance of the threat is such that a post-issuance review would not reduce the

threat to an acceptable level and, therefore, a pre-issuance review is required. In such

circumstances, a pre-issuance review shall be performed.

Thereafter, when the fees continue to exceed 15%, each year the disclosure to and

discussion with those charged with governance shall occur and one of the above

safeguards shall be applied. If the fees significantly exceed 15%, the firm shall determine

whether the significance of the threat is such that a post-issuance review would not

reduce the threat to an acceptable level and, therefore, a pre-issuance review is

required. In such circumstances, a pre-issuance review shall be performed.

Fees — Overdue

4.123 A self-interest threat may be created if fees due from an audit or review client remain

unpaid for a long time, especially if a significant part is not paid before the issue of the

report for the following year. Generally, the firm shall require payment of such fees

before the report is issued. If the fee remains unpaid after the report has been issued,

the existence and significance of any threat shall be evaluated and safeguards applied



when necessary to eliminate the threat or reduce it to an acceptable level. An example

of such a safeguard is having an additional professional colleague who did not take part

in the engagement provide advice or review the work performed. The firm shall also

consider whether the overdue fees might be regarded as being equivalent to a loan to

the client and whether, because of the significance of the overdue fees, it is appropriate

for the firm to be re-appointed.

4.124 Compensation and Evaluation Policies

4.124 A self-interest threat is created when a member of the engagement team is evaluated

on or compensated for selling non-assurance services to an audit or review client. The

significance of the threat will depend on:

a) the proportion of the individual’s compensation or performance evaluation that is

based on the sale of such services;

b) the role of the individual on the engagement team; and

c) whether promotion decisions are influenced by the sale of such services.

The significance of the threat shall be evaluated and, if the threat is not at an

acceptable level, the firm shall either revise the compensation plan or evaluation

process for that individual or apply safeguards to eliminate the threat or reduce it to an


• removing such members from the engagement team; or


team.

4.125 A key audit or review partner shall not be evaluated on, or compensated based on, that

partner’s success in selling non-assurance services to the partner’s clients. This is not

intended to prohibit normal profit-sharing arrangements between partners of a firm.

4.126 Gifts and Hospitality

4.126 Accepting gifts or hospitality from an audit or review client may create self-interest and familiarity threats. If a firm or member of the engagement team accepts gifts or hospitality, unless the value is trivial and inconsequential, the threats created would be so significant that no safeguards could reduce the threats to an acceptable level. Consequently, a firm or member of the engagement team shall not accept such gifts or hospitality.

4.127 Actual or Threatened Litigation

4.127 When litigation takes place, or appears likely between the firm or a member of the

engagement team and the audit or review client, self-interest and intimidation threats

are created. The relationship between client management and the members of the

engagement team must be characterized by complete candor and full disclosure

regarding all aspects of a client’s business operations. When the firm and the client’s

management are placed in adversarial positions by actual or threatened litigation,



affecting management’s willingness to make complete disclosures, self-interest and

intimidation threats are created. The significance of the threats created will depend on

such factors as:

a) the materiality of the litigation; and

b) whether the litigation relates to a prior engagement.




• if the litigation involves a member of the audit or review team, removing that

individual from the engagement team; or

• having a professional colleague review the work performed.

If such safeguards do not reduce the threats to an acceptable level, the only appropriate

action is to withdraw from, or refuse to accept the engagement.



5. Restricted Use Reports

Introduction

5.1 The independence requirements apply to all audit and review engagements. However,

in certain circumstances involving engagements where the report includes a restriction

on the use and distribution, and provided the conditions described in 5.2 and 5.3 are

met, the independence requirements may be modified as provided in paragraphs 5.5 to

5.15. These modifications are only applicable to engagements as described in this

section, that is:

a) for engagements that are intended to provide a conclusion in positive or negative

form that the financial statements are prepared in all material respects, in

accordance with the applicable reporting framework, including, in the case of a fair

presentation framework, that the financial statements are fairly presented, in all

material respects, in accordance with the applicable reporting framework; and

b) where the opinion report includes a restriction on use and distribution.

The modifications are not permitted in the case of an audit or review of financial

statements required by law or regulation.

5.2 The modifications to the requirements of the CGA Independence Standard are permitted

as long as the intended users of the report:

a) are knowledgeable as to the purpose and limitations of the report; and

b) explicitly agree the application of the modified independence requirements.

Knowledge as to the purpose and limitations of the report may be obtained by the

intended users through their participation, either directly or indirectly, through their

representative who has the authority to act for the intended users, in establishing the

nature and scope of the engagement. Such participation enhances the ability of the firm

to communicate with intended users about independence matters, including the

circumstances that are relevant to the evaluation of the threats to independence and

the applicable safeguards necessary to eliminate the threats or reduce them to an

acceptable level, and to obtain their agreement to the modified independence

requirements that are to be applied.

5.3 The firm shall communicate (for example, in an engagement letter) with the intended

users regarding the independence requirements that are to be applied with respect to

the provision of the audit or review engagement. Where the intended users are a class

of users (for example, lenders in a syndicated loan arrangement) who are not specifically

identifiable by name at the time the engagement terms are established, such users shall

subsequently be made aware of the independence requirements agreed to by the

representative (for example, by the representative making the firm’s engagement letter

available to all users).



5.4 If the firm also issues an opinion report that does not include a restriction on use and

distribution for the same client, the provisions of this section do not change the

requirement to apply the provisions in sections 1 through 4 of the CGA Independence

Standard to the engagement.

5.5 The modifications to the requirements of the CGA Independence Standard that are

permitted in the circumstances set out above are described in paragraphs 5.6 to 5.15.

Compliance in all other respects with the provisions of the CGA Independence Standard

is required.

Public Interest Entities

5.6 When the conditions set out in paragraphs 5.1 to 5.4 are met, it is not necessary to

apply the additional requirements in paragraphs 4.2 to 4.127 that apply to audit or

review engagements for public interest entities.

Related Entities

5.7 When the conditions set out in paragraphs 5.1 to 5.4 are met, references to audit or

review client do not include its related entities. However, when the engagement team

knows or has reason to believe that a relationship or circumstance involving a related

entity of the client is relevant to the evaluation of the firm’s independence of the client,

the engagement team shall include that related entity when identifying and evaluating

threats to independence and applying appropriate safeguards.


5.8 When the conditions set out in paragraphs 5.1 to 5.4 are met, reference to the firm does

not include network firms. However, when the firm knows or has reason to believe that

threats are created by any interests and relationships of a network firm, they shall be

included in the evaluation of threats to independence.

Financial Interests, Loans and Guarantees, Close Business Relationships, and Family

and Personal Relationships

5.9 When the conditions set out in paragraphs 5.1 to 5.4 are met, the relevant provisions

set out in paragraphs 4.2 to 4.46 apply only to the members of the engagement team,

their immediate family members and close family members.

5.10 In addition, a determination shall be made as to whether threats to independence are

created by interests and relationships, as described in paragraphs 4.2 to 4.46, between

the audit or review client and the following members of the engagement team:

a) those who provide consultation regarding technical or industry-specific issues,

transactions or events; and



b) those who provide quality control for the engagement, including those who perform

the engagement quality control review.

An evaluation shall be made of the significance of any threats that the engagement

team has reason to believe are created by interests and relationships between the audit

or review client and others within the firm who can directly influence the outcome of

the engagement, including those who recommend the compensation of, or who provide

direct supervisory, management or other oversight of the engagement partner in

connection with the performance of the engagement (including those at all successively

senior levels above the engagement partner through to the individual who is the firm’s

Senior or Managing Partner (Chief Executive or equivalent)).

5.11 An evaluation shall also be made of the significance of any threats that the engagement

team has reason to believe are created by financial interests in the audit or review client

held by individuals, as described in paragraphs 4.8 to 4.10 and paragraphs 4.13 to 4.15.

5.12 Where a threat to independence is not at an acceptable level, safeguards shall be

applied to eliminate the threat or reduce it to an acceptable level.

5.13 In applying the provisions set out in paragraphs 4.6 to 4.15 to interests of the firm, if the firm has a material financial interest, whether direct or indirect, in the audit or review client, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, the firm shall not have such a financial interest.

Employment with an Audit or Review Client

5.14 An evaluation shall be made of the significance of any threats from any employment

relationships as described in paragraphs 4.35 to 4.39. Where a threat exists that is not at

an acceptable level, safeguards shall be applied to eliminate the threat or reduce it to an

acceptable level. Examples of safeguards that might be appropriate include those set

out in paragraph 4.37.

Provision of Non-Assurance Services

5.15 If the firm conducts an engagement to issue a restricted use and distribution report for

an audit or review client and provides a non-assurance service to the client, the

provisions of paragraphs 4.55 to 4.127 shall be complied with, subject to paragraphs 5.5

to 5.8.



6. Effective Date — Audit or Review Engagements

6.1 This Standard and the related CGA Code of Ethical Principles and Rules of Conduct

(CEPROC) are applicable to audit and review engagements, effective December 15,

2010. This date is regardless of the period ending date of the financial statements which

are the subject of the report, and the commencement date of the engagement.

Transitional Provisions

6.1.1 Provision of non-assurance services

The revised CGA Independence Standard will expand some of the restrictions on

providing certain non-assurance to audit and review clients. CGA Alberta requires that a

firm shall not contract for such services after the effective date of December 15, 2010

and any ongoing services that were contracted for before the effective date shall be

completed within six months after that date. Therefore, a firm shall not contract for any

such services after December 15, 2010 and any ongoing services that were contracted

for before this date shall be completed by June 15, 2011.

6.1.2 Audit partner rotation

The revised CGA Independence Standard will extend the existing partner rotation

requirements to all key audit partners and to all firms, irrespective of size. CGA Alberta is

of the view that where the revised independence requirements would require additional

individuals to rotate, it is appropriate to provide an additional year before this

requirement is effective for those individuals. For example, key audit partners who are

neither the engagement partner nor the individual responsible for the engagement

quality control review would be subject to the rotation requirements on December 15,

2011. Any individuals who had served in such a position for seven or more years on

December 15, 2011 would be required to rotate off the engagement team and would

not be permitted to be a member of the engagement team or a key audit partner for

two years.

6.1.3 Public Interest Entities

The revised CGA Independence Standard will extend the independence requirements

that apply with respect to the audits of reporting issuers to all other public interest

entities as defined (see definition section). CGA Alberta is of the view that it is

appropriate to provide an additional year after the effective date before these

requirements are effective. Therefore, these provisions are effective on December 15,

2011.



7. Application of Framework in Specific Situations – Other Assurance

Index

7. APPLICATION OF FRAMEWORK IN SPECIFIC SITUATIONS – OTHER ASSURANCE ........................... 69

7.1 INTRODUCTION — OTHER ASSURANCE ENGAGEMENTS 70

7.3 FINANCIAL INTERESTS 70

7.12 LOANS AND GUARANTEES 72

7.19 BUSINESS RELATIONSHIPS 74

7.22 FAMILY AND PERSONAL RELATIONSHIPS 75

7.29 EMPLOYMENT WITH OTHER ASSURANCE CLIENTS 78

7.33 RECENT SERVICE WITH AN ASSURANCE CLIENT 79

7.36 SERVING AS A DIRECTOR OR OFFICER OR DIRECTOR OF AN OTHER ASSURANCE CLIENT 80

7.4 LONG ASSOCIATION OF SENIOR PERSONNEL (INCLUDING PARTNER ROTATION) 80

7.41 PROVISION OF NON-ASSURANCE SERVICES TO AN OTHER ASSURANCE CLIENT 81

7.44 Management Responsibilities 81

7.49 Other Considerations 82

7.52 FEES 83

7.55 GIFTS AND HOSPITALITY 84

7.56 ACTUAL OR THREATENED LITIGATION 84

In accordance with the CGA Code of Ethical Principles and Rules of Conduct rule R202.1 (b), a member is required to comply with the specified prohibitions denoted by italics in this Standard.



7.1 Introduction — Other Assurance Engagements

7.1 The following examples describe specific circumstances and relationships that may

create threats to independence. The examples describe the potential threats and

safeguards that may be appropriate to eliminate the threats or reduce them to an

acceptable level in each circumstance. The examples presented are not all-inclusive. In

practice, the member, firm, or engagement team will be required to assess the

implications of similar, but different, circumstances and relationships and to determine

whether safeguards, including the safeguards in paragraphs 2.34 through 2.41, can be

applied to satisfactorily address threats to independence.

7.2 The examples illustrate how the framework applies to assurance engagements. The

examples should be read in conjunction with the presumption that, which explains that,

in the majority of other assurance engagements, there is one responsible party and that

responsible party is the assurance client. However, in some assurance engagements

there are two or more responsible parties. In such circumstances, consideration should

be given to any threats the firm has reason to believe may be created by interests and

relationships between a member of the assurance team, the firm, a network firm, and

the party responsible for the subject matter. For assurance reports expressly restricted

for use by identified users, the examples should be read in the context of paragraphs 5.1

to 5.15.

7.3 Financial Interests

7.3 Holding a financial interest in an assurance client may create a self-interest threat. The

existence and significance of any threat created depends on:

a) the role of the individual holding the financial interest;

b) whether the financial interest is direct or indirect; and

c) the materiality of the financial interest.

7.4 Financial interests may be held through an intermediary (e.g., a collective investment

vehicle, estate or trust). The determination of whether such financial interests are direct

or indirect will depend on whether the beneficial owner has control over the investment

vehicle or ability to influence its investment decisions. When control over the

investment vehicle or the ability to influence investment decisions exists, that financial

interest must be considered a direct financial interest. Conversely, when the beneficial

owner of the financial interest has no control over the investment vehicle or ability to

influence its investment decisions, that financial interest is an indirect financial interest.

7.5 If a member of the engagement team, member of that individual’s immediate family, or a firm has a direct financial interest, or a material indirect financial interest, in the assurance client, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, none of the following shall have a direct financial interest or a material indirect financial interest in the client: a member of the engagement team, a member of that individual’s immediate family, or the firm.



7.6 When a member of the engagement team has a close family member who the

engagement team knows has a direct financial interest or a material indirect financial

interest in the assurance client, a self-interest threat is created. In evaluating the

significance of the threat, consideration shall be given to the nature of the relationship

between the member of the engagement team and the close family member and the

materiality of the financial interest to the close family member. Safeguards shall be

applied when necessary to eliminate the threat or reduce it to an acceptable level.

Examples of such safeguards include:

• the close family member disposing, as soon as practicable, of all of the financial

interest or disposing of a sufficient portion of an indirect financial interest so that the

remaining interest is no longer material;


team; or

• removing that individual from the engagement team.

7.7 If a member of the engagement team, a member of that individual’s immediate family, or a firm has a direct or material indirect financial interest in an entity that has a controlling interest in an assurance client and the client is material to the entity, the self-interest threat created would be so significant that no safeguard could reduce the threat to an acceptable level. Therefore, neither a member of the engagement team, a member of that individual’s immediate family, nor the firm shall have such a financial interest.

7.8 The holding by a firm, or a member of the engagement team, or a member of that

individual’s immediate family of a direct financial interest or a material indirect financial

interest in the assurance client as a trustee creates a self-interest threat. Holding such

an interest is only permitted when:

a) neither the trustee, nor an immediate family member of the trustee, nor the firm are

beneficiaries of the trust;

b) the interest in the assurance client held by the trust is not material to the trust;

c) the trust is not able to exercise significant influence over the assurance client; and

d) the trustee, an immediate family member of the trustee, or the firm cannot

significantly influence any investment decision involving a financial interest in the

assurance client.

7.9 Members of the engagement team shall determine whether a self-interest threat is

created by any known financial interests in the assurance client held by other individuals

including:

• partners, and professional personnel of the firm, other than those referred to above,

or their immediate family members; and

• individuals with a close personal relationship with a member of the engagement

team.

Whether these interests create a self-interest threat will depend on factors such as:

a) the firm’s organizational, operating, and reporting structure; and

b) the nature of the relationship between the individual and the member of the

engagement team.





include:

• removing the member of the engagement team with the personal relationship from

the engagement team;

• excluding the member of the engagement team from any significant decision-making

concerning the assurance engagement; or

• having a professional colleague review the work of member of the engagement

team.

7.10 If a firm, a member of the engagement team, or an immediate family of the individual,

receives a direct financial interest or a material indirect financial interest in an assurance

client, for example, by way of an inheritance, gift or, as a result of a merger, and such

interest would not be permitted to be held under this section, then:

a) if the interest is received by the firm, the financial interest shall be disposed of

immediately, or a sufficient amount of an indirect financial interest shall be disposed

of so that the remaining interest is no longer material, or the firm shall withdraw

from the assurance engagement; or

b) if the interest is received by a member of the engagement team, or a member of that

individual’s immediate family, the individual who received the financial interest shall

immediately dispose of the financial interest, or dispose of a sufficient amount of an

indirect financial interest so that the remaining interest is no longer material, or the

individual shall be removed from the engagement team.

7.11 An inadvertent violation of this section as it relates to a financial interest in an assurance

client is not deemed to compromise independence if all of the following conditions are

met:


the firm of any breaches resulting from the purchase, inheritance, or other

acquisition of a financial interest in the assurance client;

b) The actions taken in paragraph 7.10 (a) and (b) are taken as applicable; and

c) the firm applies other safeguards necessary to reduce any remaining threat to an



engagement team; or



In addition, a determination shall be made as to whether to discuss the matter with

those charged with governance.

7.12 Loans and Guarantees



7.12 A loan or guarantee of a loan to a member of the engagement team, or a member of

that individual’s immediate family, or the firm from an assurance client that is a bank or

a similar institution, may create a threat to independence.



7.13 If the loan or guarantee is not made under normal lending procedures, terms, and conditions, a self-interest threat would be created that would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, neither a member of the engagement team, member of that individual’s immediate family, nor a firm shall accept such a loan or guarantee.

7.14 If a loan to a firm from an assurance client that is a bank or similar institution is made

under normal lending procedures, terms, and conditions, and it is material to the

assurance client or firm receiving the loan, it may be possible to apply safeguards to

reduce the self-interest threat to an acceptable level. An example of such safeguard is

having the work reviewed by a professional colleague from a network firm that is

neither involved with the assurance engagement nor received the loan.

7.15 A loan or guarantee of a loan from an assurance client that is a bank or a similar

institution to a member of the engagement team or member of that individual’s

immediate family, does not create a threat to independence if the loan or guarantee is

made under normal lending procedures, terms, and conditions. Examples of such loans

or guarantees include home mortgages, bank overdrafts, car loans, and credit card

balances.

7.16 If the firm or a member of an engagement team or member of that individual’s immediate family accepts a loan from, or has a borrowing guaranteed by, to an assurance client that is not a bank or similar institution or an officer or director of the client or a shareholder of the assurance client that owns more than 10% of the equity, or guarantees such borrowings, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level unless the loan or guarantee is immaterial to both the firm or member of the engagement team and the immediate family, and the client.

7.17 Similarly, if a firm or member of an engagement team or a member of that

individual’s immediate family makes or guarantees a loan to an assurance client, an officer or director of the client or a shareholder of the assurance client that owns more than 10% of the equity, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level, unless the loan or guarantee is immaterial to both the firm or the member of the engagement team, and the immediate family and the client.

7.18 If, a firm or a member of the engagement team, or a member of that individual’s

immediate family, has deposits or a brokerage account with an assurance client that is a

bank, broker or similar institution, a threat to independence is not created if the deposit

or account is held under normal commercial terms.

7.19 Business Relationships

7.19 A close business relationship between a firm or a member of the engagement team or a

member of that individual’s immediate family and the assurance client or its



management arises from a commercial relationship or common financial interest and

may create self-interest or intimidation threats. Examples of such relationships include:

a) having a financial interest in a joint venture with either the client or a controlling

owner, director or officer or other individual who performs senior managerial

activities for that client;

b) arrangements to combine one or more services or products of the firm with one or

more services or products of the client and to market the package with reference to

both parties;

c) distribution or marketing arrangements under which the firm distributes or markets

the client’s products or services, or the client distributes or markets the firm’s

products or services.

7.20 Unless any financial interest is immaterial and the business relationship is insignificant to the firm and the client or its management, the threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, unless the financial interest is immaterial and the business relationship is insignificant: a) the business relationship shall not be entered into, or shall be reduced to an

insignificant level; or b) the firm shall decline or terminate the assurance engagement.

In the case of a member of the engagement team, unless any such financial interest is

immaterial and the business relationship is insignificant to that member, the individual

shall be removed from the engagement team.

If the business relationship is between an immediate family member of a member of the

engagement team and the assurance client or its management, the significance of any

threat shall be evaluated and safeguards applied when necessary to eliminate the threat

or reduce it to an acceptable level.

7.21 The purchase of goods and services from an assurance client by the firm, or a member

of the engagement team, or a member of that individual’s immediate family does not

generally create a threat to independence if the transaction is in the normal course of

business and at arm’s-length. However, such transactions may be of such a nature or

magnitude that they create a self-interest threat. The significance of any threat shall be

evaluated and safeguards applied when necessary to eliminate the threat or reduce it to


a) eliminating or reducing the magnitude of the transaction; or

b) removing the individual from the engagement team.

7.22 Family and Personal Relationships

7.22 Family and personal relationships between a member of the engagement team and a

director or officer or certain employees (depending on their role) of the assurance client

may create self-interest, familiarity, or intimidation threats. The existence and

significance of any threats will depend on a number of factors, including the individual’s



responsibilities on the engagement team, the role of the family member or other

individual within the client, and the closeness of the relationship. Consequently, the

particular circumstances will need to be evaluated in assessing the significance of these

threats.

7.23 When an immediate family member of a member of the engagement team is:

a) a director or officer of the assurance client; or

b) an employee in a position to exert significant influence over the subject matter

information of the assurance engagement;

or was in such a position during any period covered by the engagement or the

subject matter information, the threats to independence can only be reduced to an

acceptable level by removing the individual from the engagement team. The closeness

of the relationship is such that no other safeguards could reduce the threat to an

acceptable level. If this safeguard is not applied, the firm shall withdraw from the


7.24 Threats to independence are created when an immediate family member of a member

of the engagement team is an employee in a position to exert significant influence over

the subject matter of the engagement. The significance of the threats will depend on

factors such as:

a) the position held by the immediate family member; and

b) the role of the professional on the engagement team.

The significance of the threat shall be evaluated and safeguards applied when


safeguards include:

• removing the individual from the engagement team;


not deal with matters that are within the responsibility of the immediate family

member.

7.25 Threats to independence are created when a close family member of a member of the

engagement team is:

a) a director or officer of the assurance client; or

b) an employee in a position to exert significant influence over the subject matter

information of the engagement. The significance of the threats will depend on

factors such as:

i) the nature of the relationship between the member of the engagement team and

the close family member;

ii) the position held by the close family member; and

iii) the role of the professional on the engagement team.



include:





not deal with matters that are within the responsibility of the close family member.

7.26 Threats to independence are created when a member of the engagement team has a

close relationship with a person who is not an immediate or close family member, but

who is a director or officer or an employee in a position to exert significant influence

over the subject matter information of the assurance engagement. Members of the

engagement team are responsible for identifying any such persons and for consulting in

accordance with firm policies and procedures. The significance of the threats will


a) the nature of the relationship between the individual and the member of the

engagement team;

b) the position the individual holds with the client; and

c) the role of the professional on the engagement team.




• removing the professional from the engagement team; or

• structuring the responsibilities of the engagement team so that the professional does

not deal with matters that are within the responsibility of the individual with whom

the professional has a close relationship.

7.27 Self-interest, familiarity, or intimidation threats may be created by a personal or family

relationship between:

a) a partner or employee of the firm who is not a member of the assurance team; and

b) a director or officer of the assurance client or an employee in a position to exert

significant influence over the subject matter information of the assurance

engagement. The existence and significance of any threat will depend on factors such

as:

i) the nature of the relationship between the partner or employee of the firm and

the director or officer or employee of the client;

ii) the interaction of the partner or employee of the firm with the engagement team;

iii) the position of the partner or employee within the firm; and

iv) the role of the individual within the client.



include:

• structuring the partner’s or employee’s responsibilities to reduce any potential

influence over the assurance engagement; or

• having a professional colleague review the relevant assurance work performed.

7.28 An inadvertent violation of this section as it relates to family and personal relationships

is not deemed to compromise independence if:




the firm of any breaches resulting from changes in the employment status of their

immediate or close family members or other personal relationships that create

threats to independence;

b) the inadvertent violation relates to an immediate family member of a member of the

engagement team becoming a director or officer of the assurance client or being in a

position to exert significant influence over the subject matter information of the

assurance engagement, and the relevant personnel is removed from the engagement

team; and

c) the firm applies other safeguards when necessary to reduce any remaining threat to



engagement team; or

ii) excluding the relevant personnel from any significant decision-making concerning

the engagement.

7.29 Employment with Other Assurance Clients

7.29 Familiarity or intimidation threats may be created if a director or officer of the

assurance client, or an employee who is in a position to exert significant influence over

the subject matter information of the assurance engagement, has been a member of the

engagement team or partner of the firm.

7.30 If a former member of the engagement team or partner of the firm has joined the

assurance client in such a position, the existence and significance of any familiarity or

intimidation threats will depend on factors such as:

a) the position the individual has taken at the client;

b) any involvement the individual will have with the engagement team;

c) the length of time since the individual was a member of the engagement team or

partner of the firm; and

d) the former position of the individual within the engagement team or firm, for

example, whether the individual was responsible for maintaining regular contact with

the client’s management or those charged with governance.

In all cases the individual shall not continue to participate in the firm’s business or professional activities.

The significance of threats created shall be evaluated and safeguards applied when



• making arrangements such that the individual is not entitled to any benefits or

payments from the firm unless made in accordance with fixed pre-determined

arrangements;

• modifying arrangements such that any amount owed to the individual is not material

to the firm;



• modifying the plan for the assurance engagement;

• assigning individuals to the engagement team who have sufficient experience in

relation to the individual who has joined the client; or

• having a professional colleague review the work of the former member of the

engagement team.

7.31 If a former partner of the firm has previously joined an entity in such a position and the

entity subsequently becomes an assurance client of the firm, the significance of any

threats to independence shall be evaluated and safeguards applied when necessary to

eliminate the threat or reduce it to an acceptable level.

7.32 A self-interest threat is created when a member of the engagement team participates in

the assurance engagement while knowing that the member of the engagement team

will, or may, join the client at some time in the future. Firm policies and procedures shall

require members of the engagement team to notify the firm when entering

employment negotiations with the client. On receiving such notification, the significance

of the threat shall be evaluated and safeguards applied when necessary to eliminate the

threat or reduce it to an acceptable level. Examples of such safeguards include:


• a review of any significant judgements made by that individual while on the

engagement team.

7.33 Recent Service with an Assurance Client

7.33 Self-interest, self-review, or familiarity threats may be created if a member of the

assurance team has recently served as a director, officer or employee of the assurance

client. This would be the case when, for example, a member of the engagement team

has to evaluate elements of the subject matter information the member of the

engagement team had prepared while with the client.

7.34 If, during the period covered by the assurance report, a member of the engagement team had served as director or officer of the assurance client, or was an employee in a position to exert significant influence over the subject matter information of the assurance engagement, the threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Consequently, such individuals shall not be assigned to the engagement team.

7.35 Self-interest, self-review, or familiarity threats may be created, if, before the period

covered by the assurance report, a member of the engagement team had served as a

director or officer of the assurance client or was an employee in a position to exert

significant influence over the subject matter information of the assurance engagement.

For example, such threats would be created if a decision made, or work performed, by

the individual in the prior period, while employed by the client is to be evaluated in the

current period as part of the current assurance engagement. The existence and

significance of any threats will depend on factors such as:

a) the position the individual held with the client;

b) the length of time since the individual left the client; and



c) the role of that member on the engagement team.


to reduce the threat to it to an acceptable level. An example of such a safeguard is

conducting a review of the work performed by the individual as part of the engagement

team.

7.36 Serving as a Director or Officer or Director of an Other Assurance client

7.36 If a partner or employee of the firm serves as a director or officer of an assurance client, the self-review and self-interest threats created would be so significant that no safeguards could reduce those threats to an acceptable level. Therefore, if such an individual were to accept such a position while continuing to serve as a partner or an employee of the firm, the firm shall decline or withdraw from the assurance engagement.

7.37 The duties as Company Secretary may range from administrative duties, such as

personnel management and the maintenance of company records and registers, to

duties as diverse as ensuring that the company complies with regulations or providing

advice on corporate governance matters. Generally, this position is seen to imply a close

association with the entity.

7.38 If a partner or employee of the firm serves as Company Secretary for an assurance

client, self-review and advocacy threats are created that would generally be so

significant that no safeguards could reduce the threats to an acceptable level. Despite

paragraph 7.36, when this practice is specifically permitted under local law, professional

rules or practice, and provided management makes all relevant decisions, the duties and

activities shall be limited to those of a routine and administrative nature, such as

preparing minutes and maintaining statutory returns. In those circumstances, the

significance of any threats shall be evaluated and safeguards applied when necessary to

eliminate the threats or reduce them to an acceptable level.

7.39 Performing routine administrative services to support a company secretarial function, or

providing advice in relation to company secretarial administration matters, does not

generally create threats to independence as long as client management makes all

relevant decisions.

7.4 Long Association of Senior Personnel (Including Partner Rotation)

7.40 Familiarity and self-interest threats are created by using the same senior personnel on

an assurance engagement over a long period of time. The significance of the threats will


a) how long the individual has been a member of the engagement team;

b) the role of the individual on the engagement team;

c) the structure of the firm;

d) the nature of the assurance engagement;

e) whether the client’s management team has changed; and

f) whether the nature or complexity of the subject matter information has changed.




to eliminate the threats or reduce them to an acceptable level. Examples of such

safeguards include:

• rotating the senior personnel off the engagement team;

• having a professional colleague who was not a member of the engagement team

review the work of the senior personnel; or


7.41 Provision of Non-assurance Services to an Other Assurance Client

7.41 Firms have traditionally provided to their assurance clients a range of non-assurance

services that are consistent with their skills and expertise. Providing non-assurance

services may, however, create threats to the independence of the firm or members of

the engagement team. The threats created are most often self-review, self-interest, and

advocacy threats.

7.42 When specific guidance on a particular non-assurance service is not included in this

section, the conceptual framework shall be applied when evaluating the particular

circumstances.

7.43 Before the firm accepts an engagement to provide a non-assurance service to an

assurance client, a determination shall be made as to whether providing such a service

would create a threat to independence. In evaluating the significance of any threat

created by a particular non-assurance service, consideration shall be given to any threat

that the engagement team has reason to believe is created by the providing other non-

assurance services. If a threat is created that cannot be reduced to an acceptable level

by the application of safeguards, the non-assurance service shall not be provided.

7.44 Management Responsibilities

7.44 Management of an entity performs many activities in managing the entity in the best

interests of the stakeholders of the entity. It is not possible to specify every activity that

is a management responsibility. However, management responsibilities involve leading

and directing an entity, including making significant decisions regarding the acquisition,

deployment, and control of human, financial, physical, and intangible resources.

7.45 Whether an activity is a management responsibility depends on the circumstances and

requires the exercise of judgement. Examples of activities that would generally be

considered a management responsibility include:

a) setting policies and strategic direction;

b) directing and taking responsibility for the actions of the entity’s employees;

c) authorizing transactions;

d) deciding which recommendations of the firm or other third parties to implement;

and

e) taking responsibility for designing, implementing, and maintaining internal control.



7.46 Activities that are routine and administrative, or involve matters that are insignificant,

generally are not deemed to be a management responsibility. For example, executing an

insignificant transaction that has been authorized by management or monitoring the

dates for filing statutory returns and advising an assurance client of those dates is not

deemed to be a management responsibility. Further, providing advice and

recommendations to assist management in discharging its responsibilities is not

assuming a management responsibility.

7.47 Assuming a management responsibility for an assurance client may create threats to

independence. If a firm were to assume a management responsibility as part of the

assurance service, the threats created would be so significant that no safeguards could

reduce the threats to an acceptable level.

Accordingly, in providing assurance services to an assurance client, a firm shall not

assume a management responsibility as part of the assurance service.

If the firm assumes a management responsibility as part of any other services provided

to the assurance client, it shall ensure that the responsibility is not related to the subject

matter and subject matter information of an assurance engagement provided by the

firm.

7.48 To avoid the risk of performing management functions related to the subject matter or

subject matter information of the assurance engagement, the firm should be satisfied

that a member of management with a sufficient level of understanding of the service,

and an ability to evaluate the results, has been designated to make all significant

judgements and decisions connected with the services and to accept responsibility for

the actions to be taken arising from the results of the service received. This reduces the

risk of inadvertent significant judgements or decisions by the firm. This risk is further

reduced when the firm gives the client the opportunity to make judgements and

decisions based on an objective and transparent analysis and presentation of the issues.

7.49 Other Considerations

7.49 Threats to independence might be created when a firm provides a non-assurance

service related to the subject matter information of an assurance engagement. In such

cases, consideration should be given to the significance of the firm’s involvement with

the subject matter information of the engagement, whether any self-review threats are

created, and whether any threat to independence that is not clearly insignificant can be

reduced to an acceptable level by the application of safeguards.

7.50 A self-review threat may be created if the firm is involved in the preparation of subject

matter information that is subsequently the subject matter information of an assurance

engagement. For example, a self-review threat would be created if the firm developed

and prepared prospective financial information and subsequently provided assurance on

this information. Consequently, the firm must evaluate the significance of any self-

review threat created by the provision of such services. If the self-review threat created



is not clearly insignificant, safeguards shall be considered and applied when necessary to


7.51 When a firm performs a valuation that forms part of the subject matter information of

an assurance engagement the firm shall consider any self-review threat. If the threat is

not clearly insignificant, safeguards shall be considered and applied when necessary to


7.52 Fees

7.52 When the total fees generated by an assurance client represent a large proportion of

the total fees of the firm, the dependence on that client or client group and concern

about the possibility of losing the client may create a self-interest threat. The

significance of that threat will depend on factors such as:

a) the operating structure of the firm; and

b) whether the firm is well established or newly created.

The significance of the self-interest threat must be evaluated and, if that threat is not

clearly insignificant, safeguards shall be considered and applied when necessary to

eliminate the threat or reduce it to an acceptable level. Examples of such safeguards

include:

• taking steps to reduce dependency on the client;

• external quality control reviews; and

• consulting a third party, such as the member advisor of an Affiliate or a professional

colleague, on key assurance judgements.

7.53 A self-interest threat may also be created when the fees generated by the assurance

client represent a large proportion of the revenue from an individual partner’s clients.

The significance of the threat must be evaluated and, if the threat is not clearly

insignificant, safeguards shall be considered and applied when necessary to eliminate

the threat or reduce it to an acceptable level. Examples of such safeguards include

having a professional colleague who was not a member of the engagement team review

the work done or otherwise advise as necessary.

7.54 A self-interest threat may be created if fees due from an assurance client remain unpaid

for a long time, especially if a significant part is not paid before the issue of the

assurance report, if any, for the following period. Generally, the firm should require

payment of such fees before any such report is issued. A safeguard that should be

considered and applied as necessary to eliminate the threat or reduce it to an

acceptable level is having a professional colleague who did not take part in the

engagement provide advice or review the work performed. The firm should also

consider whether the overdue fees might be regarded as being equivalent to a loan to

the client and whether, because of the significance of the overdue fees, it is appropriate

for the firm to be re-appointed.



7.55 Gifts and Hospitality 7.55 Accepting gifts or hospitality from an assurance client may create self-interest

and familiarity threats. When a firm or member of the engagement team accepts gifts or hospitality, unless the value is clearly insignificant, no safeguards could reduce such threats to an acceptable level. Consequently, a firm or member of an engagement team shall not accept such gifts or hospitality.

7.56 Actual or Threatened Litigation

7.56 When litigation takes place, or appears likely to occur between the firm or member of

the engagement team, a self-interest or intimidation threat may be created. The

relationship between client management and members of the engagement team must

be characterized by complete candor and full disclosure regarding all aspects of a

client’s business operations. The firm and the client’s management may be placed in

adversarial positions by litigation, affecting management’s willingness to make complete

disclosures. As a result, the member or firm may face a self-interest threat. The

significance of the threat created will depend on such factors as:

a) the materiality of the litigation; and

b) whether the litigation relates to a prior assurance engagement.

The significance of the self-interest threat must be evaluated, and, if the threat is other

than clearly insignificant, safeguards shall be considered and applied to eliminate the

threat or reduce it to an acceptable level. Examples of such safeguards include:

• if the litigation involves a member of the engagement team, removing that

individual from the engagement team; or

• having a professional colleague in the firm who was not a member of the

engagement team review the work done or otherwise advise as necessary.

If such safeguards do not reduce the threat to an acceptable level, the only appropriate

action is to withdraw from, or refuse to accept, the assurance engagement.



8. Effective Date – Other Assurance Engagements

8.1 This Standard and the related Code of Ethical Principles and Rules of Conduct (CEPROC)

are applicable to other assurance engagements effective December 15, 2010. This date

is regardless of the period ending date of the other assurance engagement report and

the commencement of the engagement.

8.2 The provisions apply to any other assurance engagement and engagements to issue a

report of the results of applying specified auditing procedures where the engagement is

commenced after December 31, 2010.

Documents

CODE OF ETHICAL PRINCIPLES AND RULES OF CONDUCT